The Wolf Of All Streets - Regulators And Legislators Attack Crypto | What It Means For The Market Moving Forward

Episode Date: October 27, 2022

My special guests today are Charlie Shrem, the host of UntoldStories.com crypto podcast, Charles Jansen, the Head of DeFi Transformation at S&P Global, and David Nage, Portfolio Manager at Arca. Charlie Shrem: https://twitter.com/CharlieShrem Charles Jansen: https://www.linkedin.com/in/chajansen David Nage https://twitter.com/DavidNage ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   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.

This is the Wolf of All Streets podcast, and what you're listening to is an audio version of my live YouTube stream. I would love if all of you would please go on Apple or Spotify, whatever platform you're listening to, and rate the show, give it a five stars that more people will listen and find this episode. Thank you for listening and enjoy. The usual suspects in Congress and the Senate are seemingly stepping up their attacks against crypto and specifically against DeFi. Recent news showed that five U.S. senators, the usuals, Elizabeth Warren, Alexandria Ocasio-Cortez, Sheldon Whitehouse, Rashida Tlaib, and Jesus Garcia, are very concerned about the revolving door between the crypto industry and

regulators, accusing the crypto industry of trying to manipulate regulation around the space. Sounds very familiar to, I don't know, what's been happening between Wall Street and regulators and the government since the existence of Wall Street. But who am I? Who am I to judge such things? I've got three amazing guests today. We're going to start with regulation and the crackdown of what it means and let the conversation flow from there. I've got David Nage from ARCA, Charles Jansen from the SNP, and Charlie Shrem from basically everything in the history of crypto ever.

You guys don't want to miss this. Let's go. Let's go. with the fingernail on your pinky finger. As I mentioned, I have three amazing guests today. Usually we push for 45 minutes to an hour, but everybody seemingly only has about 30 minutes. So I'm going to go ahead and bring everybody on right now. I've got David, Charles, and Charlie. I was joking, Charles Jansen before.

Your partner is Chuck Mounts at S&P. So you guys are Charles and Charles. You basically had to rebrand him as Chuck. And now we've brought you yet another Charlie. Yeah, Charles is just everywhere in DeFi. I had a meeting every day with some Charles from somewhere. So we've got Chuck, Charles, and Charlie.

Chuck, Charles, and Charlie. Works out perfectly. Charles and Charge. I don't know which Charles is in charge. That's the problem. I'm Charlie. People call me Charles every day, but my real legal name is charlie when my grandfather came off the boat no one told him charles was the real name and charlie was the nickname so he just wrote charlie we can't do it for charlie then okay well well you're charlie

in charge then so right jumping back nice nice to see all of you all friends of the show everybody's been here obviously multiple times so i want to jump jump into what I just talked about at the very beginning in the introduction. Listen, this letter is nothing new. Elizabeth Warren seems to just have a scribe who's literally blindly sending things to regulators and on a daily basis. We also know that recently she had sent a letter to the power company in Texas asking about how Bitcoin mining is affecting the grid there. But what do you make of this sort of stepped up rhetoric from legislators about, I guess, specifically the revolving door here between DeFi and the government? Fix my camera. I can take it.

Go ahead, Charles. So I think it's not a bad thing. the government fix my camera. I can take a first. Go ahead, Charles. So I think it's not a bad thing. I think at the end of the day, what everybody in the field and mostly on the TratFi side, right? Because we got DeFi angle, so I'm still maxis on. We don't want any type of regulation,

but many know that they need TratFi to thrive. And now we call it NuFi. That's a TratFi going into DeFi. And we need regulation. So, you know, anything that can kickstart the conversation, the regulator moving into crypto, I think, well, it just comes with when you're going to get regulated. You need to have better knowledge. So you'll hire X regulator. It's common, as you were saying, something that's been happening in every industry with every regulator.

And yeah, so I think it's a good kickstarting. The question around energy consumption in Texas is good too. It might lead to actually a really good answer on how it's helping. So I think it could be good

even if it looks, you know. Right. I just want to read this quote though because I 100% agree with what you're saying. But they're taking the opposite tack, which is saying that they should not be able to hire people from the crypto industry because they're trying to. But the reality is there's not a single person regulating right now that understands the crypto industry. So who better to actually inform them than people who know what they're doing? Right. Yeah. I, go ahead.

Go ahead, David. I wanted to jump in real quick. And first, I have to say this. None of this is my opinion. This is not financial advice, all that good stuff. But I was reading both when we were kind of initializing the conversation here. So you're right, Scott. So in the letter, it says the crypto sector has rapidly escalated its lobbying efforts in recent months, spending millions in an attempt to secure favorable regulatory outcomes as Congress and federal agencies work to craft

and enforce rules to regulate the multi-trillion dollar industry. Okay, so they're trying to actually get a foot in the door, so there's actually education there. Fine. But if you look, and I actually know this because I spent some time on the sustainability side, Sheldon Whitehouse has been fighting for ESG and climate change, sustainable policy for decades. And I respect him for that. But if you look a year ago, Bloomberg actually reported this on Bloomberg Law. The quote, the kind of the title of the report is Democrats ESG drive fuels lobbying bonanza in Washington. So they on the ESG side have been jumping through hoops to get lobbyists there to educate everyone about climate change, because, again, this has become a political football, where, you know, climate change, if you're a Democrat is something that

you have to obviously fix if you're a Republican, so and so it's etc, etc. So they have hired dozens and dozens of lobbyists. They said more than 40 companies, trade associations and advocacy groups have lobbied federal officials on ESG matters so far in 2021. So why is that OK and why is this not OK? I don't understand. Charlie, what's your take? It's it's there's a lot of different angles you can go from it. So I kind of go back in time to 10 years ago when the problem was that we weren't engaging with the government at all. And so it was like you had the Bitcoin industry here and then the rest of the government and the regulators and different bodies that were supervising and observing. And the problem was we weren't engaging enough. So over the years, you saw engagement, you saw a huge coin center and the Center for Digital Commerce and all these different lobby groups that come into D.C. and said, hey, you don't know, we don't know. So let's not know

together and figure this out. And that's kind of what happened a little bit on the state side of things. You see the cooperation with crypto companies in states very close, Texas for mining, Florida financial services, New York, the bit license. We don't need to go there, but it seems like on the federal side, the lack of clarification has been the way that they regulate. And so how could you blame crypto companies from wanting to hire government officials because they're the only ones who understand the regulations and the way the governments think? I mean, right after what's his name created the BitLicense literally in New York, which is the license you need to have to have a crypto company in New York state or to operate there. He immediately went over and went into private consulting to teach crypto companies how to get the license that he created. This has been, if you go voting in Florida, Scott,

if you look at the voting card, every judge that we're voting for to stay in office was either first a government lawyer and then went to private practice and then became a judge. So, I mean, if you're going to stop the practice in crypto, you have to stop it all over the world. Yeah, that's my feeling, that we're oddly being specifically targeted here for a practice that is literally as deeply ingrained as our government, as the Constitution itself. Right?

And so... Well, that's our fault too, Scott. Yeah, go ahead. We haven't marketed this, the technology and innovation very well at all. We haven't done that at all. It's been about degens and about yield farming and about let's get rich fast.

We haven't marketed this at all to the consumer. How is this going to make everyone better? How is this going to help people's lives? Something as simple as stepping, which obviously we're not invested in, I'm not invested in, but something as simple as a Stepin app, where you actually are incentivizing people to get off their butts and go walk. And oh, wow, you know, for that, you're actually going to get, you know, incentive for that. And gee, that's actually going to help you potentially live a longer life and be, you

know, less sick and, you know, potentially, you know, all the good things that come from exercise, you know, those types of things. We don't, you know, in terms of DeFi, we, you know, we've been focusing on, again, as I said, you know, the eel farming and all the kind of experimentation, but DeFi also potentially gives the people ability to have an identity that they never had before. They don't have a social security number. They don't have a social security number. They don't have a passport identifier. You know, DeFi and the rails here on Web3 can provide that to people and give them a better chance of having more input into the economic systems that we have. But we don't market that way. And so it's a marketing issue. And so as long as we have a bad marketing kind of

agency in the crypto industry as a whole, they're going to keep hitting us. I agree, but isn't that where S&P Global steps in, Charles? I mean, there's no more established... So opinions are my own, right? But I agree with what you said with the fact that yield farming, et cetera, is not... The way it was done in 2021, 2020, is not the way it should be shown.

But now there's many protocols that focus on real yield. And I disagree on the kind of statement thing. So yeah, it's good to go and work, but the revenue need to come from somewhere and not be more Ponzi-like. Or I think actually that kind of project somehow didn't help because, well, they just collapsed because they create revenue from nowhere.

Statement is very similar to how Axie used to be. Again, it's just my opinion. But there is a new line, a new DeFi with all the real world asset, all the actual real yield financing liquidity for market maker and more, these tokenization of loans that are being done by some of those protocol in the US and abroad. And this is real and this interests a lot of people. I spoke with several regulators. I'll speak again with another one from North America soon. There is a real interest around this.

And yes, the main marketing could be around efficiencies. But at the end of the day, and going back to what we discussed before, every politician got their style and the way to either attack or try to be aggressive or try to bring some spotlight, speaking about an important team. But at the end of the day, the more we can have conversation on the Hill and at the federal level, the better it's going to be. And it's coming right when you look at what Singapore is doing, because it's not the US only. It's an international competition between countries to see who will be part of the leading the next financial system. So you've got the UK, which used to be regulated by Europe.

Now they need to start from scratch and define things. You got the new prime minister. He really wants to, well, it seems that he wants to be crypto friendly and he's crypto friendly and this might help. You got Singapore, which is really pushing with the Project Guardian, doing very interesting thing, asking for everything to be done on public chain. And then you got Dubai with the new regulator. So it's going in the right direction. Like we just need this to happen.

It's so new. You mentioned ESG. ESG is how old? 10 years, maybe more. Yeah, way more. Like since we really speak about DeFi is 2 years old. So we're all going to be burned at the stake by the Bitcoin maximalists for saying that regulation is coming or necessary, especially you, Charlie. You were the original Bitcoin maximalist, right?

So hearing you actually say, listen, early, we didn't engage with regulators enough. We were too anti-government, whatever that is. That's a very pragmatic and realistic stance. But I don't think a lot of people have come to that yet in the Bitcoin community. No, if we don't, if we're not, if we don't have a close relationship with the government, however it is, as we grow this technology out, then people are going to continue going to jail. And we don't want that for our industry. We don't, it just sets us back a few years. And so I think, you know, you brought up SBF's tweet thread the other day about regulation. And I think if you read that, he does a somewhat of a decent job,

although he should have did in the beginning of the thread, separating what he sees as needing regulation and what he sees is not needing regulation. And what he sees as needing regulations, I think we all agree on is that anything related to like transmitting money or toll booths, you know, like the, the centralized exchanges, or you talked about Charles, to like transmitting money or toll booths, you know, like the centralized exchanges. Or you talked about, Charles, you talked about securitization of properties, things like that. In fact, the reason they haven't exploded more is because the lack of regulation. If they came out with a good way to like say, hey, crypto companies maybe have this new, you know, reg BTC,

which is a new regulatory framework for crypto companies and DeFi. Like maybe they can invent a new one. There's so many different ideas that they can do. And I mean, the different regulatory bodies of the government here in the US to make this better. But what he did say at the end, which was interesting, was he said that and I don't know if I have the quote still, he said, I'm talking about centralized on-ramps, not self-executing protocols. He said, I'm not making claims about developers, smart contracts, and validators.

And so I think he's trying to like, I don't know what he's trying to do. Try to thread the needle, right? I mean, he's trying to like, I don't know what he's trying to do. Try to thread the needle, right? I mean, he's trying to thread the needle. It's a very fine line. It's a very hard, I'm happy none of us have to do it because it's a very difficult job. David, I know you were about to jump in.

Yeah. Scott, you know what's insane and kind of crazy about this all? Is that on the one side, on the authors of that letter are those that are fighting tooth and nail against what they consider technology kind of monopolies, Facebook, Amazon, etc. They do not like the centralization. They don't like the control of power, how many different affiliates they have, whether it's Instagram, all the other different things that have been rolled up into those, you know, kind of technology monoliths.

And all of a sudden there is something here that says, OK, well, we actually agree. We think decentralization is better. It shouldn't all be consensually controlled into one thing. It actually should be distributed. And the fact that they have not been able to bridge that, that that's the ethos of what we're trying to build here. And they are attacking it as a centralized type of, you know, technology, you know, company like Facebook. It just, again, it shows that the education and the knowledge gap is wide right now. I think the optimistic version is that they're just dumb and uneducated,

which you kind of said and can't connect it i think there's a more pessimistic version which is that there's special interests behind that i can't speak to whether that is but obviously if you're getting paid by a bank and defy threatens the banks maybe you're gonna attack defy yeah so every bank i speak with are getting into defy right they're all looking at infrastructure first, but they're all interested. Again, who's doing Project Guardian, trying to tokenize trillions of treasuries on Ethereum in Singapore is JPMorgan Onyx. Every bank is looking at tokenization. Every bank is looking at DeFi in general, the most cannot invest in the token themselves because we need at least regulation to start with stablecoin and knowing what is the capital requirement, what is actually what you need to do to be able to invest in this. But I don't believe in the idea of the mean bank.

I'm kind of the opposite opinion of everybody. Yeah. And I'm not a banker. I'm from a tech background. I speak with bankers every day and I don't have a pre-made opinion on any side. But what I see is that they are interested. They're interested in the efficiencies, interested in their operability, they're investing in different protocols. You know, you've got very big asset managers that are doing a lot of things.

Like, for instance, if, so it's not DeFi, but you see everything that BlackRock have been giving on the news, right? They're investing in Circle. They are now having Aladin with Coinbase to trade crypto. They have a trust for Bitcoin. They're working with Maker for different things. So they see something there, I think it's true for many others, and I don't think they are the enemy, I don't think they are paying behind, you know, politicians or something like that, lobbying.

Sometimes we're surprised though, because to be absolutely honest, it's really hard to find the right person in every organization, you know, in our traditional client. And sometimes it has happened. We speak with somebody, which is more on the traditional person we would speak with. And they tell us, now DeFi is a scam. We're not interested. We're not into that. And two weeks later,

you have an announcement that their company just spin up a subsidiary to trade crypto, right? But they didn't know because it's not something they share. Different departments, right. Which makes perfect sense there for sure. Dave, I mean, back to your point, it drives me nuts what you just said. If you're first of all, this should be a nonpolitical issue. And most of the actual legislation has been bipartisan. Right. These letters happen to be from one side and somewhat aggressive.

But I do think that that skews our view. I think it is very bipartisan. But if you're progressive, liberal left, whatever, and you believe in empowering the people, as you said, Bitcoin should be literally the most, and DeFi, but should be literally the most obvious thing for you to support and push. Yeah, you're absolutely right. We are literally trying to unearth the last 20 plus years of technology conglomeration and monopolization. And we are trying to give the user, the end user who is participating in these networks, an ability to have that incentive, have that same upside, not just the few. And as a VC, I know, you know, we come under attack because, you know, obviously we're always the ones that are kind of at the butt of the few. And as a VC, I know we come under attack because obviously we're always the ones that are kind of at the butt of the jokes,

but we're all trying to support these networks to try to decentralize and try to create them more egalitarianly. We want the user, the participant to actually have the upside of that. That's why we're doing all this. That's why most of us who are on your shows or working day in and day out

left our other jobs to do the things that we're doing, because we see that there is a potentiality for that. And one last point to Charles is mentioning, too, really interesting this week of all places, of all firms, of all companies in the world. J.P. Morgan is actually working on a project called Onyx. Onyx is a DID, a decentralized identity platform that is trying to create a verified methodology for people to actually have a identity using their on-chain activities, having their social media platforms, et cetera, et cetera. They're trying to put that into a place where it can be a SSI, a kind of a self-sovereign identity. JP Morgan's doing that. I mean, this is not coming from, you know, a kind of a crypto native Web3 company project out there.

That's JP Morgan. So, yeah, there's a lot of things that currently do not make a lot of sense. So I guess, listen, because it's a shorter timeline today, maybe we should talk about what place regulation actually should play in the future. Since we all agree that it's coming, whether we want it or not, I think we do, to be quite honest, us. But where should the focus be? Should it be on guaranteeing that we don't have algorithmic stablecoins exploding? Should it be on disclosures? I think transparency is a huge, huge place that regulation can help,

certainly would have helped with the Voyager and Celsius situation. Charlie, I'll let you jump in. What do you think regulators should be focusing on and what shouldn't they? Definitely disclosures and things like that. The information and copy and marketing around the industry. But really, any time that I feel like an application or a product or service is custodializing your funds or involved in like the moving of your money and holding on to it at a certain point in time, there needs to be regulation there. And not just to protect like for Patriot at things, but Scott, you mentioned like Voyager and Celsius to protect us users of those platforms. That's why we have those regulations because, you know, we're keeping our monies in some of these places. So definitely there. But then it's like, where where does that end? Because if you have one person in custody,

then you have a DAO where you have 10 people, but then you have maybe a larger DAO with 2000 people. So where's the line? Where's the, at what point is the risk moved from one centralized person to like, it's enough, it's decentralized enough. It's a path to decentralization. I don't know this answer. I don't think anyone at the regulatory bodies know this answer. I don't think anyone knows this answer. One of the reasons, one of the reasons why Lehman and other massive collapses happened over a decade ago was the lack of transparency. No one knew what they had on the books. They didn't know all the, you know, kind of the synthetics and obviously how deep the systemic risk went.

And so when we saw what happened in the last few months, again, centralized entities were able to kind of safeguard from that, from the transparency. But DeFi, again, is all on ledger. You can see, you can go to a block explorer and look at all the transactions. Today, we have more forensics and more forensic analysis on crypto Twitter than we ever could have imagined in traditional finance. And so, yes, regulation is incredibly important. But I am also personally a believer in free markets. And I'm also a believer that you have to have a level of libertarianism in terms of policy. There are tools and applications that we should be able to use that, again, we should show some sort of proof that we actually know what we're doing. It shouldn't just be in terms of accreditation about how much money we have so we can invest in certain things.

It should be here's a 15 or 20 question quiz or a test. Show us how much knowledge you have about these types of applications. Things like Rabbit Hole and other different projects out there that make you go through quests so you actually can start to participate in these types of DeFi applications. There's a lot of self-governing that we can do in this industry beyond just having policy. But again, regulation, as we've always said, you know, as a firm, we welcome regulation in a way that is not going to deafen the innovation here. And so it is hand in hand. It is working with policymakers. Having people there in D.C. every day talking to them is really good. So there's an education bridge. And so all those things are incredibly important for the future success of this industry. Charles?

I'll answer a few points. So just quickly, ONIX from GPModern is a full division. So all the project gathering is done by ONIX. Now, everything is on-chain in DeFi. That's true only for the over collateralized angle for all the new type of protocol, Maple, Clearpool, TrueFi, you know, all those gold finch, et cetera. They, you would land on the pool, but then the actual loan is off chain, right? So you don't have, it's better than what Celsius was, but you don't have

still visibility on what happened yet. And that's where things like CredoRx help but it's coming what we believe in tokenization of everything and as you mentioned like a lot of collabs that happened in the past was because we had a black box you didn't know what they were doing most people had no idea exactly what was done it was too complex so it was not looked at it the right way but as everything will move on because we I do believe it with token But as everything will move on chain, because I do believe with tokenization of everything will happen, then you can imagine a format where securitization will be basically done on chain. If you can see at the loan level the information on chain, then it

just changed everything. Now, going back to the politics and this aspect, well, you know, I live in Argentina. I see how the economy is in Argentina, so I won't comment on the far left and the kind of impact it can have. But I think we just need to focus on educating, as you were saying, specifically at the center, so we can have that kind of bipartisan thing that started to happen. And the first thing that we really, really need is more clarity around stablecoin.

Again, once we have that specifically for DeFi, and I'm not mentioning Bitcoin or anything like that because I'm more on the East Maxi side and believing more in smart contracts, that kind of thing. But once we'll have visibility on stablecoin, which might happen as soon as next year, it can be a really big game changer and add more interest and weigh more money into the field, which in turn will bring more interest from politicians and maybe more regulation.

And once you have the rules of the game, you can play. And now we don't have rules. I totally agree. And unfortunately, we're right up against time. So I know that everybody here needs to go. But I think the moral of the story is that regulation is coming and we should have an influence on what that is as an industry. And nobody should have a problem with people who actually are educated doing that hard work, Because otherwise we're just going to get heavy handed regulation based on 1930s and 1940s laws that makes absolutely no sense. But the very fact that we have Charles Jansen here with the name S&P Global next to it should

tell you everything that you need to know about where this industry is headed, in my very humble opinion. Thank you, David, Charles, Charlie Shrem. Guys, actually, all of their names are their Twitter names if you want to go follow them. It's the easiest thing ever. Nobody's like CryptoDeFiGen47983.5. Charles Jansen, David Dej, Charlie Schrem. Guys, thank you very much.

I appreciate all three of you coming today. We'll have all of you back again. Can't wait, everyone else. I will be back, as usual, tomorrow morning at 9.30 a.m. Eastern Standard Time. See you there. you there peace guys thank you very much thanks