The Wolf Of All Streets - From CFPB to Crypto: Kathy Kraninger's Mission to Revolutionize & Cleanse the Cryptocurrency Industry

Episode Date: May 30, 2023

Join Scott Melker as he sits down with Kathy Kraninger, former Director of the Consumer Financial Protection Bureau, now turned cryptocurrency advocate, in a thought-provoking discussion about the evolving digital currency landscape. In this episode, Kraninger unveils her plans to help clean up the crypto industry, sharing insights from her extensive career in financial policy. Tune in to uncover the future of crypto regulation, the intriguing intersection between crypto enterprises and banks, and Kraninger's personal mission to drive responsible innovation in this rapidly expanding financial frontier. Follow Kathy Kraninger: Twitter: https://twitter.com/CFPBKraninger ►► OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $10,000! 👉 https://www.okx.com/join/SCOTTMELKER ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/ ►►NORD VPN GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/ Follow Scott Melker: Twitter: https://twitter.com/scottmelker Web: https://www.thewolfofallstreets.io Spotify: https://spoti.fi/30N5FDe Apple podcast: https://apple.co/3FASB2c #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

If we're going to continue talking about regulation and legislation, how important they are, and that we need meaningful and reasonable ideas coming from the government, then we need people on our side of the industry who understand how to get those laws passed,atory Affairs at Solidus Labs, but she was the former director of the Consumer Financial Protection Bureau for the entire United States of America. She actually, in her job before that, managed a multi-hundred billion dollar budget for Homeland Security and other massive agencies. She understands the bureaucracy in Washington, how regulation should move forward, and how to truly protect consumers but allow innovation to flourish. But I met you at Consensus on the floor there in Austin with Josh Frank, who must have said five times in a row, you have to have Kathy on the podcast. You have to have Kathy on the podcast. So do you want to talk about regulation? Honestly, no. But it's the only thing there is to talk about anymore, right? But you probably have more background in that space than almost

anyone we could possibly get on this podcast. I don't generally go into the tell me your story, but tell me your story because it's pretty crazy. Well, thanks for that, Scott. And it was fantastic to meet you at Consensus and great lead up to the chance to just get to have a conversation with you. And I thank Josh for that too, because he is definitely one of the friends that I have met on my crypto journey. But I started actually in a long career working for the U.S. government in a variety of capacities. On September 11th, I it in the best possible way. And it led to tons of international negotiations and setting standards about, you know, again, what document verification and security requirements look like, what supply chain security requirements look like, and trying to rationalize even, you know, how you screen people across borders. And that was the introduction to me of new areas of regulation and really how you build that and how you think about it.

You have to partner with the industry. I mean, prior to September 11th, this screening was actually carried out by the airlines. And it was pursuant to federal direction, but it wasn't, you know, there was a lot of flexibility there for them in terms of how they carried it out. And you had to work with them because the flow of passengers, in fact, is actually very related to, you know, how you even can manage that flow. So you get to all kinds of issues around all of the interdependencies of scheduling flights and passenger loads and all of those things. And so it really, it taught me a lot about how you think about government and how those activities in a heavily regulated industry

drive a lot of the decisions that businesses make. And frankly, that can help in innovation or that can hurt in innovation. And transportation, that, as I said, was a segue into a lot of the other things I've done in my career around federal budget and big technology programs. But that, of course, did lead me into financial services. And the last job that I had in government was as director of the Consumer Financial Protection Bureau. industry, existing regulators, global dynamics around fintech and banking and things that do cross borders, and increasingly people crossing borders who have these same expectations, no matter where they are in the world, that these things are all supposed to work. And then you juxtapose that against the cultural changes that the crypto industry has sought to bring and that, frankly, led to many of the

innovations that are driving crypto. It's just a fascinating space to be part of. And I was excited two years ago to join this industry and definitely happy to talk about what I do now. But I'll stop to give you a chance to take it where you'd like to take it. For sure. I mean, people were probably just mad that they had to take their shoes off and take their laptops out of their bag and throw their water away, right? I know. I hesitate to bring it up, but it is, you know, again, we're looking at threats, risks, and congressional direction under the law. I mean, that's the fundamental dynamic there.

I mean, listen, I'm 46 years old. I remember those casual days of travel where you were trying to get as far away from the smoking section on the plane and you could basically show up 20 minutes before your flight and walk through and nobody screened you. So I can't imagine. I mean, we all look at it now, but looking at it in hindsight, what a transition that would have been for anyone who did it before sort of probably highlights the challenges you have in any newer industry or when you have one of these black swan events. You're in crypto now, which has effectively been the wild west and almost no regulation. And now there's actually been financial harm done to consumers,

you could argue, after the contagion of last year. And so now we look for a regulatory framework. And I think most people in the industry would say that we are not heading in the right direction in that regard. Maybe that's a result of the party that's in power or the people that are in positions of power within it. Certainly, everybody dislikes Gary Gensler. But how are we going to put together a framework from the regulatory side for crypto that allows innovation but also protects

consumers, which to your point is exactly what you were doing for years. I mean, you were literally in charge of protecting consumers in the financial space for the United States government. No, it's a fundamental question and one that really has just a lot of different facets to it. I think some of it does get to those consumer expectations. So I guess one of the key fundamentals of consumer protection is actually disclosure and dealing with information, asymmetry, what do insiders know that, frankly, the public investors, consumers should know when they're engaging with a product? There's also a dynamic that gets lost here, but that investment is actually risk.

And the other issue that we're thinking about, too, as Americans is you don't get anywhere without taking risk. That's in life. Risk elimination is not actually the goal. It's risk mitigation and, frankly, again, disclosing the risks and letting people make decisions about the risks that they're willing to take or not take for themselves. I can tell you, as I look at my own career, joining the crypto industry, albeit at a software provider that is seeking to bring market integrity into the market and that we help monitor these markets for manipulation, for fraud, that's still a risk. It's a startup business. It's a challenging environment. There are competitors. So it's a risky decision to decide to do these things. But it's my right to decide that that's where I want to go as a career.

And so having options available to investors and consumers to be able to make decisions for themselves about the risk level they want to take, that's also part of this dynamic. And I think a lot of today's world, there's a lot of idea here that you should just be able to eliminate the risk and that that somehow is, you know, or preclude people from interacting with crypto, which is really just, I think, the wrong approach. So it's how do we build the transparency and disclosure and enable crypto to meet its promise? That's the way the framework really should be undertaken. And there are countries that are doing it that way. Seems like every other country at least has a plan and that we're just sort of

regulating by enforcement and not offering people any sort of protection. It's interesting to me because the biggest problem last year really was with Voyager and Celsius and all these, that lack of disclosure and transparency that you discussed. They were marketed as banks, effectively, a number of these platforms or safe exchanges and custodians. In reality, they were hedge funds that were gambling with client or customer money. But if they had literally just sent out a monthly disclosure and said, this is where your money is going, Voyager, for example, to which I'm a creditor, if they had said, we just gave an unsecured, uncollateralized loan for $700 million

or three hours capital, people would have then had the opportunity to exit. So it seems like even just simply putting those disclosures in place in advance of these mistakes instead of just punishing people, which doesn't help consumers at all, after the fact would be where the focus should be. I'm not even blaming them necessarily for not protecting people because I know it's hard to get ahead of these things at that time. But that should be the template for what we do moving forward. Correct? Oh, definitely. I mean, again, some of this, we've been talking about crypto is the Wild West. Some of it is just bread and butter financial services. So the same responsibilities that a bank has or that a hedge fund has or that any corporation has are the same responsibilities that many of these centralized crypto companies have. They are intermediaries, they have responsibilities and obligations under the law, and they weren't following them.

So that is where this enforcement dimension should occur. However, we are talking to about, you know, a some fundamentally different market structures. because there are new ways to enable really people to engage with assets and to take investment risks and decisions they want to take. And the current structure just doesn't enable all of that. And that's the frustration. And, you know, we could probably get into the Coinbase SEC back and forth. But I think that's a good example of it. And what many of the other countries are doing is saying, yes, if you are dealing in, you know, securities trading, there are laws about that. And there are requirements under that, you know, no matter what you claim to be doing differently, you still have to follow those laws and rules, but we are creating something for digital assets that might be utility tokens that perhaps those projects don't even know yet what the ultimate use case is going to be. But you still have a baseline of disclosures that you have to follow. You still have requirements. And so you aren't just if you're, again, launching one of those businesses, you aren't free and clear

from that level of consumer or investor protection. And we have this, come in and register, come in and talk to us. It's going to be great. It's a party in here, right? And you can't register any of this stuff. They won't even define what it is. That's the bigger problem. It's funny to watch the evolution of the crypto spaces sort of interaction with the SEC because at first it was like, none of this is securities, leave us alone. Then it became, just tell us which ones are securities. Now it's like, literally just name everything securities so we can move on and just give us any clarity, right? Just say it. Just say it. And we can't get any of that. So there's just no way for this industry to even comply. Like you said, I don't think even

most people at this point are opposed to the idea of registering and being regulated. They just can't do it. There's no path. Yeah, that's exactly the problem. And I think one of the challenges we've had as an industry is we haven't done a great job of capturing the specifics around why that is. And more of that is now being talked about because again, I think it's out of people's frustrations. And now do you look at that again, just come and register. It's not like it's a web form that takes somebody, you know, 20 minutes to fill out. We're talking about hiring a law firm and an army of lawyers and spending millions of dollars and seeking to come up with ways to address what the requirements are, recognizing you can't do it. You can't do it from here. people understand that and are frankly trying to structure their entities to make sure that

custodial responsibilities are met, to make sure that, again, conflicts are disclosed and are mitigated or addressed when they're not allowed. So those types of things are a more probably clear example of things that are going to go away. I mean, you're just not able to actually perform all of the functions in the market. But protections around settlement and clearing, when that settlement and clearing is instantaneous, you know, there's a whole lot of cost in traditional finance that segregates some of those duties to address a risk that immediate settlement and clearing just doesn't even actually provide. There are other risks there, but that is not something that needs to be mitigated and something that you need to,

again, at the end of the day, charge all of us for when we're looking to engage in it in that instantaneous way. And those are the kinds of things that are more specific and needy and need to be addressed. And that's why the, you know, come in and register is pretty disingenuous. And speak of charging us all for it, I mean, the American taxpayer is effectively paying for all these enforcement actions. Right. The absurdity of that, I think, is painful. We're also paying for the bankruptcy cases, right? And many of us have lost money and them are actually paying for both sides of the court case. So it's a really, I think, broken process. But not to harp on all of the negative, I think. We can just dive in,

I guess, as you alluded to, to Coinbase. Because this is theater of the absurd more than maybe even any of them. Because Coinbase actually direct listed and had to get permission, effectively, from the very SEC that's now sending them Wells notices and threatening to litigate or an enforcement action on things that they were aware of for years. Now, it is a bit of a head scratcher here in terms of the interest in the government of, you know, continuing to expand the public markets that have made the U.S. the hallmark for investment and the envy of the world. You know, you have a prominent crypto company that came forward and went through, you know, that process, had to disclose all kinds of things to the SEC in that process. And certainly that includes the products that they're, you know, offering to the public and the path and their business plan and all of the disclosures that go with becoming a public company.

They went through all of that. They, in fact, continue to meet their obligations on that front. And and yet, you know, you have this what appears to be a fixation. Look, I served in government. My heart is still in government in many respects and doing it the right way. But I really do wonder what's happening here. So you almost hope that they have something that is going wrong there that warrants the amount of attention and resources being expended to take enforcement action. And then you get to also a philosophy of mine. I don't think that market participants generally who come to the government to try to engage, understand what the rules are, have a conversation about the products they want to offer

and how they can meet their legal obligations and requirements, I don't look at them as the first targets for enforcement. In fact, those who are operating in the shadows are really the ones that are avoiding the conversation and engagement with government. And that doesn't mean that things don't happen. Of course, things happen in companies. And you see it with all kinds of settlements, with big institutions. They are, at the end of the day, full of people. And there are people who do dumb things and are seeking to take advantage of people. there should be this fixation over many years, you know, Wells notices going back again, many years, allegations going back many years. That is definitely, it seems, a lot of resources for something that doesn't probably make a lot of sense. And then you have Coinbase and a lot of the industry saying, look, tell us what the rules are. Again, we want to be good actors. How do we

comply? What do you expect? Lay it out in actually proactive, positive regulation. Give us a procedures process under the Administrative Procedures Act that puts all of this out in the open in terms of what we have to do, rather than case-by-case enforcement actions that are relevant only to the facts that apply, rather than to the marketplace writ large in terms of setting expectations. How much of this will be solved simply by regime change? I mean, we know how politics work. You resigned from your job when there was turnover in the presidency, right? Because you were with one administration and we know how politics work. You resigned from your job when there was turnover in the presidency, right? Because you were with one administration and we moved into another one.

Inevitably, there will be a switch back and then the same sort of turnover will happen. And maybe we see the people who are so anti-crypto losing their jobs and another regime coming in. I mean, listen, Donald Trump did not like Bitcoin. We know that. But Jay Clayton and Brian Brooks, you know, are at the head of these regulators and had very sensible approaches. So I think there's different levels to it. Does a switch over in who's the president or what party is in control solve this? And we just are patient and wait. Now, I think it is important to be optimistic in terms of recognizing the different levers that happen here.

I mean, I can't promise that the next SEC chair is going to be pro-crypto per se. There were a lot of people that thought. Can't be worse. We love the Gensler. could, you know, that it could be. But I do think that the, it is encouraging, again, what's happening in other countries, that openness to innovation, the conversations that are happening there are very reasoned, frankly, and open-minded. And we're seeing those in at least some corners in the U.S., and I might even apply it to age, although I am older. You already disclosed how old you are. We're peers. The younger generation coming along on Capitol Hill, you see it is bipartisan. And that's the one thing that I have certainly tried to do and I

think the industry has tried to do is keep it a bipartisan issue, an interest in innovation, absolutely an interest in protecting consumers the right way and having disclosures and transparencies, but recognizing that the current system doesn't work for everyone and doesn't have to remain the baseline in the way it is. We do see a lot of cost in the system and a lot of intermediaries who are making a lot of money off of consumers along the way in ways that facilitating transactions on blockchain just eliminates all of that. So I think there are new ways to do things. And you've got, again, largely younger members, but I'll at least say more open-minded policymakers across the board interested. And the last breath I'll say on that is what's happening in the States. As much as so many people thought the BIT license was overkill in the industry, people are now pretty excited about Adrian Harris's leadership and DFS really saying, hey, you know, there's no reason to drive this stuff offshore. We have a regime, we're committed to it, and we have an open door for the industry

to come and talk to us. Well, it's interesting. A year ago, you would have probably had a different take on the political situation in crypto. It seemed like it was far more bipartisan. You had Lumis Gillibrand, obviously, proposing legislation and Joe Biden saying, let's get on top of this with an executive act. Maybe that was more sinister than it looked at the time. But either way, it feels like FTX, SBF, because he was sitting down with these politicians and regulators. They got egg on their face. They're embarrassed. It seems like to me, that's what utterly changed the tone. And now it's become partisan, which to me is extremely sad for all the reasons that you sort of laid out. I mean, a free financial system that empowers poor people who don't have access to legacy financial services should be a progressive talking point, not something that they're raising an anti-crypto army over.

Well, I will say that the progressive side of this is a little bit of a head-scratcher for me, too. Well, you've gotten Elizabeth Warren before, just like our industry, right? Yes, yes. I am not sure how that got so nasty, but it was nasty before FTX. And I will say it is true too that, frankly, all of us feel, how could we have missed that amount of fraud? But again, remind ourselves that this does happen in traditional finance. There are bad people all over the place. And it's all about good people actually stepping up and doing something about it and calling it out where you see these things happening inside companies. And so it was a massive fraud on many scale, on a major scale. And there are a lot of investors who were hurt along the way, it did have a tremendous impact on the policy discussion in Washington. That I categorically agree. But I have heard so many people keep saying this has taken a partisan turn. I mean, maybe I've been in Washington too long and seen too many things

that I truly thought were partisan. I don't think crypto is actually partisan yet. I mean, in the hearings more recently, too, there are Democrats down the dais who are interested in understanding it better, are actually pro digital asset innovation and want to see the right consumer protections put in place and want to see the right system enabling this going forward. And I think recognize what many of us have been saying all along. Again, you push it offshore, you're not actually protecting Americans because people want to access these products.

And they will. And they will. And they are. And so they're doing it without the protection of a U.S. generated regime. And that's the fallacy. It's the truth of the internet is you actually cannot stop people from accessing it. The goal is to give them a safe environment in which to actually engage with it. And so that's recognized. And, you know, Lummis Gillibrand are going to reintroduce. We have still interest from ranking member waters now and former chair water.

So there are there are there is engagement there. But politics underlies, of course, everything in Washington and more and more in society than I think it should. But there are still people who are trying to do the right thing here. And continued education only helps that. Yeah, I think being more clear, I think the optics are partisan because the loud voices on each side are one or the other, but that's never probably the reality when you actually dig in. And there were, as you said, plenty of pro-crypto Democrats. I just think their voices are a lot quieter. That's very true. Six months later. There. You know, there was this brief time, I think, where there was reputational risk not to have a position on this.

And now it's flipped back to there might be reputational risk to have a position and come out in favor. So they largely probably just remain quiet and hope their constituents aren't too passionate about it. But I want to talk about what you're doing now, because we sort of alluded to the fact that there are a lot of bad actors in this space and there is a lot of fraud. And the more that's amplified, obviously gives them sort of more ammo for the crackdown. But you're trying to track and stop that to some degree. Can you talk about exactly what you're doing and how that works? Definitely. And that's why I was so excited to join Solidus Labs. So we are a risk monitoring company. We serve all kinds of market participants from the centralized exchanges, broker dealers, market makers, DEXs, and regulators as clients. It's really taking our expertise in trading behavior fundamentally.

That's what it is. Looking at the activity and saying, you know, what is happening here? We have a capability that we acquired, I guess now it's actually getting close to two years ago, but in tokensniffer.com that many in the crypto world know because they utilize it as a retail service it's actually free if you're looking to buy this new token you just heard about that's available in d5 and and you want to see whether or not it's a scam you know is it a rug pull um you can actually enter the the address into token sniffer and get a report back about that so we make those hard

rug pulls or those code level scams just available to investors writ large we also have that on a larger scale and have developed quite a bit of feeds of that into our core product called Halo. And it really is about providing that risk monitoring platform to see what's happening in that trading environment and identify manipulation, whether it's of different assets or, again, front running, spoofing, things that happen in traditional finance, but are detected. They're so easy in DeFi. My gosh. I honestly, I didn't mean to interrupt, but I honestly didn't realize how bad it was until I just, because I wanted to be able to speak on it. I have zero passion or support for it, but I wanted to just touch this meme coin craze, go in, buy a couple

of these launches, and everything is being front-run by these MEV bots. That's what's trading these things. It's completely wash trading for small profits by bots that are front-running your orders. I mean, it's a completely broken market. And so it's no mystery that this does need some sort of regulation or some sort of structure. I mean, did you ever think, I mean, before you were doing consumer protection, I mean, you were effectively managing like a quarter trillion dollar budget for homeland security and the biggest agencies in the United States. And now we're talking about rug pulls of frog memes. No, it is.

It is actually fairly ironic. As you noted, when I was at the Office of Management and Budget and on the Hill, I had, yes, literally hundreds of billions of dollars in my care in terms of how we, you know, how we think about that and budget for it. And looking at, you know, again, real people being harmed. I think it is interesting, the culture of DeFi, because people still have a mentality and maybe some of it is a pretty speculative mentality. Well, I may know that this is probably, again, wash trading or something else, but I can get ahead of it.

And so you have that individual consumer looking to invest when they're competing with all of those bots, as you said. You can't actually win in that scenario, but there are definitely people who think they can. And how we keep that clean or give them a place to actually have a safer environment, that's again what we're trying to build at Solidus as we look at new tools and capabilities in DeFi. And you do, you need industry to come up with the ways, what is appropriate behavior, what is not appropriate behavior, in many respects, before

regulators can come in and say, that's illegal. There is a line here. Some of it is, in fact, legitimate arbitrage. Those are legitimate strategies. And then a lot of it is not, to your point. Yeah. I mean, at least when you go in a casino, you know that the house has the edge and you've accepted that you're going there for the party and the free drinks. I think the problem is that a lot of people walk into these things and believe they're investing in some legitimate asset. And it's really just something that was launched for these bots to take their money. But I think that's also a very echo chamber. Very few people are participating in that. I don't think there's that many people who are

on DexTools or one of these and looking for the next big frog launch. And it's a very small part of a very small community. So you've got to be monitoring things that are much larger, I would imagine. We're talking about wash trading or manipulation in billions of dollars on centralized exchanges and the bigger DEXs, I would imagine, right? Yes. Yes. And that's where there are clients and we're seeing their internal order books in the case of those centralized exchanges and really helping them sort through those things. And to your point, the industry has matured. I mean, you get back to a lot of the early research. There was a lot of wash trading when a new, you know, CIFI exchange would launch. They were doing that to,

again, hype up their volume and get attention and interest in their services, which is completely inappropriate and problematic for a lot of reasons. And so that has sorted itself out and you don't see that happening the same way. And that's some of the new products in DeFi too. Again, they're engaging in that activity and that's what needs to start kind of pushing out. But then you do see, again, more sophisticated types of scams and manipulation. We actually have a report we're going to put out in about a month on market manipulation and crypto writ large. And so I'll admit, I've gotten some previews and pieces, but I'm very excited to see it. It's the number one question I get asked by regulators, too.

Like, what are you guys seeing and how can we think about this? And so what are you seeing? And then an answer to that in terms of how we think about it is where we need to go. But again, calling out this behavior, pointing it out to people, that's an important part of what good actors in the space need to do. This exists in regulated markets as well. I mean, it's not like penny stocks and pink sheets don't exist. And it's not very much the same thing.

But I think that the consumers in this regard do need some sort of protection because a lot of them just have no idea what's happening. And so it's interesting you said the wash trading is largely gone because that was a massive narrative even until the last year or six months, I think. Do you think that's because centralized exchanges, at least the bigger names, view themselves now as under a much larger microscope and basically it's just not worth it? They can't get away with it? Because interestingly, we knew that they have a lot of external market makers, which exist in legacy markets as well. But now we're seeing those market makers exit the United States. Jane Street and Jump. What does that mean for these order

books and for the liquidity on these centralized exchanges that are not wash trading and no longer have market makers willing to really help consumers in that regard. Make sure that you're filled. There's no slippage that you can actually trade with any volume. That is definitely a challenge as we look at what the U.S. market really looks like. And again, we're not stopping U.S. consumers from accessing these markets. We're just stopping them from having U.S. protections around them. So that is what you're seeing happen. And I'll say the exchanges that have left the US and many are leaving Canada too for similar reasons, say they're going to Europe. I mean, and we'll see if that is really where

the market turns. And one of the reasons is their regulation. Mika. Yeah, they passed the markets and crypto assets legislation. The rules are coming out and being developed further and finalized. And it's been a rational course. We've been talking about Mika now for several years, and it's marching forward on its on its path to implementation and it gets you to again not rules that everyone loves but rules that everyone can understand and can follow i was just going to say i mean mika is not great it's just clear it's funny that we've gone from like pro we want wanting pro crypto regulation to just give us any clarity so that

we can operate. But then moving to Europe, where it's actually extremely strict and not that favorable, says a lot about what's happening here. It really does. And I get it, too. Some of the policymakers are saying, good, glad, glad, get out of here. That's gone. It makes no sense. For others saying, are they really leaving?

I don't know that i believe it you know you still have a worker base in the united states the founders are in the united states so i you know some of that does remain to be seen but but i can at least say anecdotally from solidus's standpoint like that's many of our clients we owe many of our first clients were in the U.S., but in the last year, our U.S.-based clients have moved their operations very specifically out of the U.S., and we are servicing them now in terms of overseas business. And our new business is coming from Singapore-based entities, Hong Kong-based entities, frankly, the United Arab Emirates, And so a lot of these happening. And Europe is just starting. And so I'm intrigued, as I said, to see what does this really look like? And is

the business there? But it is definitely leaving the US, even if it's a, you know, kind of a half measure leaving the US trying to keep a toe here because they want to see happen over time. Coinbase isn't leaving the US. They would have no business. I mean, it's a symbolic gesture. I understand they're hedging their bets, but no leaving and just trying to establish basically a foothold somewhere else or two very different things. That is happening. I mean, in Dubai, I was in Dubai in February. You can just get a meeting with the regulator. Imagine someone just getting a meeting with Gary Gensler. The Coinbase can't even get a meeting with Gary Gensler. But in Dubai, you can call, say, I have an idea. Let me present this to you and be in their office within a week

and talk about things I didn't have in my bingo card. You just said Hong Kong. I mean, China was supposed to have banned everything. Now we're banning it and it's going to China. It's like a dystopian future I could have never predicted. This is insane. No, it is very sad. And again, the way I grew up in government and the way that I believe government should operate is that, yes, you have an open door. You have a responsibility to actually meet with the entities you regulate, meet with the industry as they want to come forward and talk to you. I think where some of the challenge comes in is you do have a history at some agencies of saying, of course, come and meet with us and the staff will meet with you. But it's not a conversation. And to your point, in Dubai, in Abu Dhabi, in Singapore,

even actually with the politics in the UK right now. I mean, it is a very open door to have conversations with policymakers, Europe sending that signal too. You don't think of France and some of the other countries as typically having that attitude, but they're projecting purposely that attitude in crypto news outlets and publicly generally to say, yes, we actually want to understand how the industry works. We want to understand, frankly, why all of these people are so interested in this and engaging with it. And that is the attitude that, you know, that some U.S. agencies just don't have a history of, again, feedback, conversation. It tends to be a one-way thing. And that's unfortunate in my opinion. I agree. If you were the chairperson of the SEC, what kind of rules would you be putting in place? Where is the happy medium?

I think it's certainly there have been, it's been a pretty robust regulatory agenda out of the SEC, but has been pointed out by many as somewhat disingenuous. So a lot of the regulatory changes don't actually even mention digital assets or crypto, but clearly encompass them and then also encompass, you know, communication protocols. There are all kinds of implications for industries beyond crypto of the rulemaking agenda the SEC has had. But what I do think has been missing is, and, you know, again, taking the SEC at their word, they don't think new legislation is actually necessary. At least at the CFTC, they've said, hey, we see a big gaping hole in spot market oversight, and we think somebody needs to take that. And we think these are largely commodities, so we should take it. That's not the position the SEC has taken. So if you assert that the SEC has all the authority they want, they could want, then it is positive rulemaking agendas. The first thing

that I would actually purport to do, and it's not, you know, unique to me as an idea, is actually helping set that baseline, similar to what Mika does in saying, sure, if you're a security, this is what you do. All of the security, man. No, yeah. You don't know what you are. Yeah. Yeah. They say, if you don't know what you are, you're offering digital assets, you still have a regime. So it is setting that baseline. And the way I think it would make a lot of sense to set that baseline is what Hester Pierce has proposed as a safe harbor. How do you launch?

How do you create these ideas before they even get bigger? You got to test them out. And the notion that you're going to come in and register as an ATS or go through the millions and millions of dollars of lawyer fees just to see if you can get an idea off the ground. I mean, in many respects, that's un-American. I could not agree more. I love Hester Peirce. She's like my favorite. And the safe harbor is the most sensible proposal I've ever heard, I think, from any regulator ever anywhere. You got three years, prove it. You can innovate, you can try, but prove that you're decentralized sufficiently by the time that three years is up, or you're going to be coming into registered security. Seems really, really obvious. Also, security used to not be a four-letter word.

It just is for the crypto industry. I think a lot of people would want to be a security. And many of them, and even Hester has said it too, many of these things, there are securities. And so what exactly is the investment contract? Is the token tied in the investment contract? Again, other things that could be made much more clear rather than just asserting that tokens or securities as a backdoor in enforcement cases just you know where that's not proven i mean that that also is something that yeah pretty disingenuous i love how the sec just randomly lists like eight to ten tokens in every enforcement action and deems them securities

out of nowhere yeah we're going after bittrex and here's seven names we pulled out of a hat that we'd like you to know our securities but but have never contacted them to let them know. It's just so disingenuous, the way that they're approaching it. It's just disgusting. It's sad. A lot more clarity would be had if we could get some parameters around that. And again, you get back to the issuers are not being approached about it. You're talking about tokens, too, that have been issued a long time. So you're now talking about tokens that are listed in many locations where the exchanges say we did due diligence. We don't intend to be trading in securities.

So help us understand why this is. And that needs to be addressed, definitely. And unfortunately, I think Congress might be the only one who can address it. Or to your point, again, there could be an SEC leadership transition that, you know, addresses more of this too, as the markets become more mature. Yeah, I mean, one day, we're going to need some clarity from lawmakers, for sure. I mean, you know, I think the people who defend Gensler say it's sort of the, if the only tool you have is a hammer, everything looks like a nail approach. And if they don't have any more clarity, they're just going to keep on hammering.

But I want to go back to Solidus because it seems like you're solving quite a few problems. The grand vision over the next few years, I mean, how much of this fraud or manipulation or bad acting can be solved by companies like yours? I mean, how much of this fraud or manipulation or bad acting can be solved by companies like yours? I mean, can we effectively clean up this industry to the point where we're not so much under the microscope of these regulators and legislators who dislike us? I certainly think so. I think, again, part of that is ensuring that you have the right incentives and that players want to create that ecosystem, too. And you have that. Again, across the globe, there are the exchanges, the broker-dealers, the market makers who want to actually operate in a regulated space.

And we have dark markets in the real world, so to speak. There are many of those types of things. But what the regulated markets have are clear bounds and parameters and consumers and investors know where they're operating. And that's what is challenging in crypto right now, too. And so that's what we're seeking to create. It's that segregation between what the regulated markets are, what the regulated offerings are, and making sure that is at least segregated and clearly delineated. And so I think that's what we can help provide. And even what we're thinking about in terms of DeFi is making it clear that you've got regulated pools of activity and building

blocks in that manner and making sure that the, you know, so that brings all of the players, validators into the system too. You talked about this risky transition for you personally, from government, obviously, to the world of magic internet money. Was that a passion for the consumer protection that you could offer this company? Or was there a passion for crypto and DeFi as well? Or have you backed into one from the other? That's how it happened with me. I came as a trader and then actually kind of fell in love with the asset class and the importance of it. But that took me a very long time. No, I think it's a passion for innovation and doing it the right way and seeing the benefits be realized. And in many respects, I think government gets in the way more than it should. And so I really feel like with my career, I'm uniquely positioned to help facilitate that. And as I said, found a company where that is definitely the mission. And there

are smarter ways to go about consumer protection. But as I said, it's about sunlight. It's about actually having that transparency, having disclosure, having clarity, and a passion for all of that, that definitely led me to seeing the benefits of what crypto's vision is, frankly. And we know it hasn't been realized fully. And that's part of the progression. Did you buy any Pepe? No, I'll admit I stay away. Me either. I stay away from-

I hate it. I just wanted to see your face if I ask. Since you're so passionate for DeFi, do you buy frogs? That's worth asking. You're in a world where we're trying to look serious. And we're trying to work directly with regulators and legislators who think this is a massive casino. And then all of a sudden, we're launching a thousand tokens a day based on frog memes that have no value and are clearly majority, not all, scams. And are we shooting ourselves in the foot here? It is definitely a challenge and a challenging environment to have these conversations because there's a part of me that doesn't understand it. I mean, I'm a conservative person when it comes to my own

money. I always have been. I take risks on my career, but not with my cash. So, you know, a lot of the things that other people buy, I see no interest in, but I see their right to buy it. And so, again, as long as the conditions are clear and they are not being defrauded, they have the right to spend their money how they like to. I mean, I'm not a big gambler either, but that is a legal activity and that is something that people enjoy. And as you said, for lots of reasons, including the free drinks. So that's something that they can decide to put their money against. Perfect. Well, is your belief that we will get a clear framework here? Or do you think we're just going to kind of exist in the gray? I mean, I would like to say that it's hard to predict the

future. So two years, four years, 10 years, I think we get there. But I just can't believe still, I hate to just harp on the same point that we're seeing it everywhere else. It's just not happening here. And we're supposed to lead in these areas. I think the the hope comes from the state level, certainly, and continued activity and interest there. The hope comes from younger people, again, who have the interest in activity and engagement still with these products and services. And I wouldn't still be living in Washington if I didn't believe in Congress's ability to do things as a former congressional staffer myself. So I think that we can act for the better. And I think some of it, though, too, is industry coming together and being organized in a way that gets to good standards and where we can do some self-policing that demonstrates we're serious.

Love it. Well, where can everybody follow you, keep up with you after this conversation and obviously check out what Solidus Lab is doing? Absolutely. So definitely, I'll admit I'm more old school. So I'm definitely active on LinkedIn more than Twitter. The company, though, is on LinkedIn and Twitter and and and Arad is on Instagram. So we've got lots of even our DeFi team being on, you know, all the other channels that are out there, too. So great to have this conversation with you, Scott. Thanks for having me. I do have one more question. Would you ever go back to government? There aren't that many jobs left that I find interesting. So at this point, we'll see. It remains to be seen. We need you on our side anyways. So we don't have that many people that understand the bureaucracy. I think of what's happening there fighting for us. So please stay

on our team. Thank you so much, Scott. Thanks, Kathy.