The Wolf Of All Streets - SEC Claims Ethereum Is A Security! W/@YieldNestFi | Crypto Town Hall

Episode Date: April 29, 2024

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John, I feel like it's been a hundred years since you've been here, man. How are you doing, my brother? Good. Have you just opted out for a while? You've had enough of us? Crypto crazies. I know Mooch has got to still be in your ear, your best friend, so you can never get away from us. No, no, no, I know. No, he's always, I mean, he's nonstop, but I'd take a bullet for him anyway. So now I've been running around a bit, but I'm happy to be back. And when I have something to say, I'm happy to be here and give you my perspective. You know, it might not be one that everyone agrees with or that everyone thinks is credible,

but I can tell you this, Scott, it's neutral. I don't make a penny either way on any of this crypto stuff, not a nickel. Well, I spent an hour talking to Peter Schiff yesterday, so there's nothing anyone can say that's going to disappoint me today. Oh, God. I tried really hard, too, to have a conversation that was not about Bitcoin. I started a conversation with Peter for the podcast yesterday that said, I don't want to talk about Bitcoin. I don't want to argue with you. I know that nobody's going to give an inch. I want to talk about the 99% of things that gold bugs and Bitcoiners agree on. And I spent 47 of the 60 minutes listening to him just crap all over Bitcoin. So I tried. I know you won't give us the same treatment. I made for a really funny intro edit, though,

for those who didn't see it, where we just sarcastically said, this is what the podcast is about. It just is every time you said gold for like three straight minutes. Gold, gold, gold, gold. So that was entertaining. But today we have more important things than the gold versus Bitcoin Peter Schiff debate. Obviously, we have consensus versus the SEC. John, it's always great to have you to give us insight when we are having a consensus versus the SEC. John, it's always great to have you to give us insight when we are having a conversation about the SEC, considering your time there. But first, as we get started here, I want to go to Eleanor, because you kind of broke this news this morning. I'm going to go ahead and find the tweet and pin it above. But it was breaking

new court filings show SEC Chair Gensler believed Ethereum was a security for at least a year. This coming obviously from Bob's business. So Eleanor, maybe you can give us some color there, whether this is a huge bombshell or somewhat expected. Well, I think it definitely gives us some insight into the timeline of the SEC's thinking around Ethereum. I think for a long time, everyone in the industry has been wondering what Gary Gensler really thinks about Ethereum. You know, he said contradicting statements over the years, but since he's taken the position as SEC chairman, he's been pretty mum on the topic. And even in front of Congress, right? We remember that hearing. It was April 18th when he testified before the House Financial Services Committee and Chairman McHenry was grilling him, asking him, like, what is Ethereum?

Is it a security? Is it not a security? It's a simple question. And Gensler couldn't answer. But we now know that the timeline relating to that is interesting because five days prior to that on April 13th, the SEC Commission, the five member commission approved the investigation into companies that do business with Ethereum, trade it, sell it. ConsenSys was one of those companies that received a subpoena and a notice of investigation. So we know that he kind of knew when he was sitting in that chair in front of Congress, right? He knew what the agency was thinking, but he didn't actually say anything. And the SEC, Genzel will say, oh, well, it's an ongoing investigation. We can't speak specifically to any ongoing investigations we have. That'll be the SEC's

defense. But I do think the timing and we can all kind of just see it laid out in succession now. You know, we go back to, if you look at the article, the SEC, the department of the enforcement department under Gurbir Grewal, he signed off on the SEC's enforcement staff to basically go and look at these companies that were dealing with Ethereum, investigate them, subpoena them, check them out basically for, you know, how are they involved in Ethereum transactions? What does it mean for their business? Just trying to get more info. But they had already, it seems that they had already were of the mind that Ethereum may potentially be a security. The timing is interesting given the merge. It was post-merge that the investigation was started.

The merge happened in the end of September of 2022. So yeah, I mean, I think in terms of like, is it a bombshell? I think the timing is just really, it's crucial here, right? Because we now know when they started thinking that Ethereum might've been the security. And even in the complaint,

they said tokens not limited to ETH but could include ETH were potential securities from as early as 2018. And the interesting part there is that in 2018, Bill Hinman gave that speech at the Yahoo Finance All-Market Summit that said basically Bitcoin and Ethereum were not viewed as securities by the SEC because they were both sufficiently decentralized. So the SEC is essentially backtracking if we believe that they do believe that the Ethereum is a security and that it has been maybe trading as a security since 2018, then they're sort of ignoring this market moving guidance speech that was given by him and then that consensus itself in the in the lawsuit filed last week consent uh conceded that they basically built their whole business their whole ecosystem on that guidance from the sec and also from the

cftc saying that ethereum was under their jurisdiction so the timing is super interesting i'm i'm excited to hear what the other what what the lawyers on this base think about this as well. Eleanor, and the CFTC has clearly said in very recent history that they believe Ethereum is a commodity. And we have clips of Gary Gensler lecturing pre-SEC chairman days with him saying that he believes Ethereum is a commodity. So to your point, there's a lot of confusion, backtracking, and flip-flopping here. Carlo, I'd love to hear your opinion on this. And then Dave Weisberger, we talked about this morning, so I would love for you to give some color to it. You had some great points. Go ahead, Carlo. Yeah, good morning, Scott, and great to see Eleanor in the house, and nice to see you back as well, John. The question I have is, does this pretty much solve the mystery of whether an Ethereum ETF

is going to be approved? Are we just getting lip service and stall tactics given this revelation that they regard Ethereum to be a security? What is that spell for the possibility of an Ethereum ETF? That's the underlying question that I'm considering. I think it's not happening this time, right? This time around. I think that's not happening this time, right? This time around. I think that's been sort of pretty clear.

Predictive markets don't think it's likely. SEC hasn't really taken the same process they did in the months leading up to the Bitcoin spot ETF. So I think, Carla, I love other people's opinions, but I think a lot of cold water on the idea that that's going to be approved, either under this administration or right now. And then, Dave, and then John, as I look at you, Mike. But, Dave, you had a really good point this morning when we spoke that was kind of about Prometheum, the quote-unquote compliant exchange. So I would love for you to reiterate that. Yeah, I mean, look, you know, I've been saying for weeks that it seems very clear that the process, I mean, certainly the Promethean guys are very, very clear publicly that they think and what they think Ethereum is a security,

that that's what they were, went through the process to be able to handle digital asset securities. And, you know, it feels very cronyistic, but not surprising. I think I predicted on this show multiple times that I thought that the reasoning behind why there won't be Ethereum ETF is Ethereum is a security and there's too much kerfuffle about where it's getting traded quote illegally and and obviously i don't believe it's illegal nor do i think that it should be a security in a world where there's no clear guidance on how for it to become a security how for an issue or to actually disclose anything basically what i said this morning is the secs created at you know with you know their overlords uh most notably you know senator warren a gordian disclose anything. Basically, what I said this morning is the SEC has created with their

overlords, most notably Senator Warren, a Gordian knot that's impossible to navigate for anybody trying to either issue or trade something that might have economic rights associated with it, which Ethereum clearly does vis-a-vis staking. So they've created this Gordian knot. The only possible motivation is to essentially tie down the entire digital asset industry. And it's unfortunate, but there's no other conclusion that one can reach, at least that I can see. I'd be curious if anybody else sees something different. Is there an argument that maybe the old ETH, the proof of work ETH was not a security, but then when they moved to proof of stake and they started adding in interest rates and staking rates and stuff like that, that that basically took the old Hinman discussion

and the old SEC, I'm not going to call it guidance because it wasn't guidance, but it was probably the only commentary from the SEC and made it, you know, basically voided it because it's actually not the same asset anymore with not the same characteristics. Well, sort of, but I want to make a couple points to answer that because I think that the notion, I think you're right about one thing. I mean, the notion is this SEC has been hostile and claims that you're a security if you provide economic rights. And that's really problematic. And I've made the point on meme coins that it's why you have meme coins that cannot monetize networks. And somehow that's protecting investors.

I mean, they'll never say it that way because it makes them look like a bunch of dopes. They're basically, their mission is to protect investors, and yet they're telling people that are controlling these assets that they can't provide economic rights. And so I think you're right in terms of that's their argument, but they don't want to make it so obvious because it makes them look stupid. The second thing – Can I push back on this for a second before we move off the, like, did the merge change things? If anyone's interested in the sort of full argument here, I wrote a piece for Blockworks about this. I actually don't think there is any strong argument at all that the merge changes anything

from Hinman's analysis. So why did Hinman say that Ethereum, as it currently trades or as it traded in 2018, is not a security? It's not because people weren't buying ETH at the expectation of profit. People clearly were in 2018. People were buying the ETH to speculate on it. It was because the network was sufficiently decentralized that unlike at the time of the ETH ICO, where if you pre-bought tokens, you were reliant on Vitalik and the Ethereum Foundation to develop the thing. By the time 2018 rolled around, there were enough different parties building on ETH that you weren't reliant on the efforts of any particular group of people.

That doesn't change at all because of the merge. Moving from proof of work to proof of stake, it adds something that at first glance looks like dividends. It's not dividends, by the way. It's not an economic right. It's a service that you perform to the Ethereum network, just like in the Bitcoin network, you hash, you do mining to secure the network, and then you are paid for that work in the form of the Coinbase rewards on the Bitcoin blockchain. So too, when you get staking rewards on Ethereum, that is payment for services. That is not a dividend that you get just simply by being a holder of Ethereum where you're paid by some company, right? So I think I reject the whole premise that, you know, A, the merge matters at all. And then B, if you look at Hinman's analysis,

that didn't even have to do with the expectation of profit, which is presumably what this, you know, A, the merge matters at all. And then B, if you look at Hinman's analysis, that didn't even have to do with the expectation of profit, which is presumably what this, you know, staking rewards thing has to do with in the first place. It's really about who are you reliant on if you're making a bet on the Ethereum ecosystem? Is it a particular group of people? Is it a company? Or is it sort of the community as a whole in a way that's not the same as like a securities issuer? And so I don't think the merge should matter at all. I think this is much more about, you know, Gary Gensler auditioning for whatever role he wants for Elizabeth Warren, and not wanting an ETF after seeing what happened with the Bitcoin ETF. I don't think this is a good faith legal attack at this point. Yeah, I'd also argue, just to push back on Rand's point about guidance, I'd argue that the him and

speech was market guidance, whether it argue that the Hinman speech was market guidance, whether it was originally meant to be or not, because the chairman at the time, Clayton, he referred market participants often to Hinman's speech for its policy on digital assets. And Hinman also went on CNBC the next day after the speech touting what he had said on stage at the Yahoo Finance Market Summit. So I would argue that it was market guidance, whether it was meant to be or not. The market certainly took it that way. Yeah, I just wanted to say that I agree with you, Zach. I wasn't saying what I thought was true. I'm just saying how they're trying to spin it. I think 100% of what you just said is right. And that's part of that Gordian knot that I was talking about. And I see, you know, John Reed Stark putting the thumbs down. Obviously,

this SEC wants not, basically doesn't want digital assets to exist. And effectively, that's really the point that I'm making is they're trying to create it in a way that is tying the industry in knots, which to me makes them from a non-merit-based regulator into a merit-based regulator, which is not what they're supposed to be. That's really the point that I was trying to make. One thing I think is important on that, Dave, is to understand what a sea change in terms of the strategy. Gary Gensler has been pointing at the digital asset industry in 2021.

He came out and he was asking the exchanges to register. So he was mainly focused on Coinbase, Binance. And you've seen all of that now played out in the court, right? We're seeing, and that's going to take a while. And in fact, the SEC just got kind of a little bit of a loss with Coinbase and that the Coinbase wallet part was thrown out, which is interesting about this too, because consensus is in Texas. So it's, when I was talking to a few people on Capitol Hill about this, and they think the SEC is trying to go at a different legal jurisdiction about MetaMask to try to establish a different precedent than what was sent about Coinbase wallet in New York. But without going down that rabbit hole, what's important about now is he's now going after tokens.

And for like three years, he wasn't going after token projects. He was trying to go about getting the exchanges to come in and register. And by doing that, that was the path of least resistance to then have the exchanges come in and then he could decide, okay, these are all securities tokens and whatever's left Bitcoin, maybe one or two others, whatever he would think, or try to work out what the CFTC would determine it and would still leave the SEC with an advantage. What you see now today, I think is a sign of slight desperation, if I could, from the SEC because the things with Coinbase and Binance aren't necessarily going exactly as they'd like. It's taking a long time

in the court to establish this precedent that the exchanges should be under the SEC jurisdiction. So now he's going after tokens, but of of course he's starting with the biggest one which is ethereum and try to pull in that big whale uh which is you know the one of the largest market shares after bitcoin and would be a big blow to the cftc that has already established as a commodity and it's already been acting like a commodity since 2018 which is why i say six years later this seems a little desperate john you're giving the thumbs down, and you're the only person here, to my knowledge, who worked at the SEC. So I'd love to hear your thoughts. I mean, well, let me start. He talks about, you know, they're like two decades ago.

All right, Zach, let it go. We're not doing the Zach and John. I'm going to charge for that at the next Karate Combat, Zach and John. Thanks, Scott. I'm not interested in personal attacks, Scott, and the minute I hear one, I'm just off, okay? First of all, I did work at the SEC for 20 years. I was chief for 11 years, and I've been teaching securities regulation, advanced securities regulation at Georgetown Law School and Duke Law School for the last 20 years, which leads to just today. I did a lecture just recently, like a week and a half ago. But putting that aside, when I do thumbs down, I'm just trying to say I disagree,

but I want to make sure I do that respectfully. I mean, starting with Eleanor, I love Eleanor's reporting. I mean, I'm a devoted follower of Eleanor's. I love to hear everything. So I don't mean to be critical of any of that. And I love to hear these other points of view also, because, you know, I litigated many cases involving whether something is a security, even prime bank securities, which are these bogus notes purporting to represent a secondary market for standby letters of credit, which are a complete fiction. And even then, those were ruled to be securities. Also, the Durasco case involving insider trading that we thought was insider trading because

somebody hacked into a company and stole information, which was initially dismissed in federal court, but we won it on appeal when I was at the SEC, saying it was insider trading. And insider trading is a lot like crypto and Howie in the sense that there's only common law. You know, everyone says regulation by enforcement. You know, that is tiresome to me because that's how we ran our enforcement program for the 20 years I was there and for the 20 years I've been teaching. It's just like if I steal my neighbor's lawnmower next door, there's no law that says that I can't steal a lawnmower, but there's a law that says I can't steal. So I get the idea that nothing is clear, but it's even worse in insider trading. So back to what Eleanor was saying, I love reading the tea leaves also. It's

tough though. I mean, let's think about what it means to get an investigation going at the SEC. So again, when I was chief, we had literally hundreds, maybe thousands of investigations during my tenure. And it's a very low threshold. It's called official curiosity. It's never been successfully challenged in any court. So if the SEC wants to investigate something, even if it thinks that there's a 99% chance that this is not a security, they can still investigate. They're in the fraud detection business, and they can find fraud elsewhere, especially when they have insiders talking about fraud.

So sometimes you—and most of the time when I was investigating something, I would say none of the commissioners, especially the chairman—and I worked for seven different chairs—especially the chair didn't know about that particular investigation. A formal investigation, which changes over from a traditional investigation where you don't have subpoena authority, a formal investigation gives you subpoena authority, although the subpoenas are not self-enforcing, so you still have to go to court to enforce them, requires permission from the commissioners, but the commissioners have generally delegated that authority downward, even as low as senior level staff. So sometimes the commissioners don't even do that. Most of my formal order investigations I would get via what's called duty officer, and they were never denied. I never had a formal investigation denied. The only time

one was questioned was they said, we think you have enough here to bring a case. You should just skip this formal investigation. So that's sort of how the process works. So there could be hundreds, and it's all non-public. So there could have been dozens of investigations pertaining to any of these entities with respect to securities and ether and everything for a long time. With respect to the speeches, I think you guys make a great point. I gave lots of speeches, and I always had to give the disclaimer that these are my personal opinions and not those of the commission. But at the same time, I wasn't stupid enough to say something that I didn't think my bosses agreed with. However, I was really careful in my speeches not to make big preemptory regulatory pronouncements.

I never thought that was right. Other officials come to the SEC, sometimes like interlopers, for two or three years, and they feel the need to make these giant speeches with big regulatory pronouncements. I don't think that's appropriate. And you're probably right in that those are driven by the chairman, but most of the other workers are driven by the staff. And if there's something you don't agree with and you're a staff person, you're not going to bring it to the commission's attention or you're going to stand up during the closed commission meeting room and tell them you don't agree with it, which happens very rarely. So looking at those things as far as what's going on with these cases, you know, the SEC, the way you develop an enforcement program with respect to anything new and different is you

start with the low-hanging fruit. So if you look at the various iterations of enforcement, you start with 2017 and the initial coin offerings, and then you go to the simple agreements for future tokens. Then you go to the lending programs. Then you go to the touting cases, the 17B of the Securities Act touting cases. That was also an evolution. Then they started, I think, I can't remember which one of the speakers said this, but then they started hitting the transactions. And I was writing articles about this stuff throughout. Then they started hitting the firms for failure to register as broker-dealers, failure to register as clearing agencies, failure to register as exchanges. Those three provisions are incredibly broad.

Section 6 for exchanges, Section 5 for offerings, Section 15 for broker-dealers, and for clearing agencies. Those are really broad provisions and are designed to catch everybody and everything. And everyone knows that. So they started to hit those. Now they're apparently making some moves toward Ethereum products and with consensus. I'll tell you also a little bit about the Wells process. It's amazing how the crypto world deals with Wells notices. Wells notices, there was a guy named Wells who felt that when

the staff made, he was a commissioner, and he felt that, hey, when the staff made a presentation to the commission seeking authority to bring a civil enforcement action, remember, the SEC is just like any other civil litigant. They have no special powers or special anything. There may be different statutes on occasion, but generally they are supposed to be treated like every other civil litigant. So merely by saying something before a case is filed, they are just another civil litigant. So anyway, the Wells decided, hey, when the staff is making these recommendations about a particular enforcement action, I want to hear what the other people have to say so they can give us a submission. And you can do that in either written form or later it was amended so that you could even do a video Wells. So, you know, sometimes I would give a Wells notice to someone and they would provide their written notice back

to me, their written submission. And I would say, wow, we would look at it and go, these are great points. And we would move on. It was generally not made public unless you were a public company and then you disclosed the wealth notice. But typically, I tried to have an open jacket, meaning I tried to give every piece of evidence that the government had against this company in front of them. I felt that, you know, it's America. You should be told everything that's ever been told that we have against you. And not every attorney took that approach, which was dead wrong, I thought, at the SEC. But most of the time, I think people, they don't want to lose their

litigation. So they say, hey, this is a case we have against you. Tell us why we're wrong. So in the crypto world, though, instead of this quiet process of persuasion that sometimes worked when I brought a wealth, they launched this massive PR campaign of saying that the SEC are a bunch of rogues. And they personify the SEC and this guy Gensler, who I've never met, with whom I've never spoken, to say he's some evil guy looking for, you know, future. John, to be fair, and I agree with you, but to be fair, haven't the courts sort of proven that to be the case a few times this year? I don't think so. I mean, when you look at debt box and you have

two SEC attorneys literally resigning, I mean, maybe it's not just an opinion. No, I get it. Let me talk about debt box and let me talk about the SEC's track record. So the SEC's track record, 99% of the time they're winning all these cases. And the parlance in the decisions, whether they be at the motion to dismiss level, at the summary judgment level, or at the trial level are pretty amazing. And if you look at Binance, this is a $4.3 billion penalty and the largest statutory framework ever, pardon me, the largest monitoring framework ever imposed upon a company. Plus, the main guy is at least going to go to prison for some time. Plus, the SEC got their TRO and they got their asset freeze. And so a lot of their victories are really unprecedented. The

Kik case, the Telegram case, the Coinbase motion to dismiss, I mean, just read the language in these. Now, going back to debt box, I'm with you, Scott. That was some, it looks like some very terrible behavior. And some of my former colleagues who are now defense attorneys are representing the people in that. And I've done a lot of those TROs. So when you do a TRO or an emergency asset freeze, you walk into the judge's chambers or you do it in a courtroom and they're what's called ex parte. So the other side isn't there. So you have a, they literally don't get a say, right? So you have to believe entirely. Yeah. You, and you have to be really, really careful about facts. And I, I did one in California where I made myself a declarant and I asked our litigator to put us,

put me on the stand because I didn't want to say something that wasn't in the record, you know, that specifically in the investigation results that we had found. I didn't want to make a mistake, like even saying, hey, they stole $10,000 when they really sold five, because I thought I could be disbarred. You know, it's a big responsibility. And these debt box guys who went in, and the SEC does not have, at least when I was there, and here Zach is totally right because I was there 20 years ago, or however many years ago. I left in 2009. Zach is right. When I was there, they didn't have any real procedures to monitor these kinds of TROs. So you could get a litigator who was very aggressive, an SEC litigator who would come in there and say could get a litigator who was very aggressive, an SEC litigator who

would come in there and say things that the staff attorney who did the investigation, this is how it works. The staff attorneys in the enforcement division do the investigation. Then when they decide to do a TRO, a temporary restraining order, which is an emergency asset freeze, and you have to prove that you're going to win beyond, you know, essentially have to prove your case to the judge in such a compelling matter that it doesn't matter that the other guy isn't there. And the reason you get the benefit of that is because you say, look, if we told the other guy, they would take the money and run. So in debt box, I think the lawyers implied that the defendant had closed a bunch of accounts and looked like they were going to skip town with the money. But the reality was, I think the SEC subpoena to the brokerage firm or the bank or whomever had triggered the compliance folks at the bank and they had shut them down. And the lawyers,

you know, typical of the SEC that they do that really ticks me off is when you catch them in doing something bad, they make it worse by denying it or by being really opaque about it. And in that situation, they did that. So I'm not surprised that those guys resigned. The inspector general probably investigated, probably made a recommendation to enforcement that they be terminated. And the enforcement agent probably said, look, you guys, we're going to either terminate you or we're going to put you on a very, very difficult and challenging performance improvement plan. You can resign.

Who knows what happened? But you are spot on, Scott. Those two guys, their conduct was reprehensible. But I just don't mean that that means the SEC is some political – I don't even know. I don't disagree. I'm just saying, I think that the point that, you know, the Wells notices have become basically an opportunity for the industry to do PR stunts. And we've agreed on that here. I think they are, to some degree, empowered by the pushback of the courts. If we look back a year ago or slightly over a year ago, when the SEC came out and you were on these shows, when the SEC came after Coinbase and then the next day or Binance then the next day Coinbase I would now fail you to remember which was first it was a Monday and a Tuesday. This industry was utterly terrified

of the SEC. The same record you talked about they win 99% we're finished it's over the coins that were passively mentioned as securities went down 30-40 percent in a day. But since then, as the courts have pushed back, you know, ripple, whatever you think of the decision. Clearly, the industry has taken it as a win. Grayscale approval of a spot ETF. Now, I just don't think the industry fears the SEC. So they take any opportunity. Yeah, look, I spoke at a Federal Reserve conference, and Paul Grewal was on a panel. And he was wearing his SEC lawsuit against him like a badge of honor. And the SEC lawsuit against Coinbase is somewhat existential. And I hosted a lot of conferences when I was at the SEC, and I still host a lot of conferences now. And we generally don't put

general counsels up of companies who are being sued by the sec you know that's just generally not the kind of people you want giving advice to the world so you're right things are upside down but i don't think i think really and i've read every single crypto case every single decision including ripple and the ripple case is a perfect example of something that's being overblown you know when the sec sought interlocutory appeal judge torres specifically said there is no basis for interlocutory appeal because this is not an or this is not a decision that has any presidential that presidential value so that means that any lawyer that cites the ripple case as precedent in any other case is violating their ethical duties because the judge like i said john

it's the perception that it's it's what the narrative you know that the narrative matters more than the actual uh words these days so it's how the industry ran yeah but you're gonna lose the case now and then uh on the district court level but you also have judge rakoff a week later taking the opportunity and the terror motion to dismiss to completely cast aside that decision. And you have the Coinbase motion to dismiss where they specifically say the crypto nomenclature may be of recent vintage, but the challenge transactions fall comfortably within the framework the courts have used to identify securities for nearly 80 years. Using enforcement actions to address crypto access is simply the

latest chapter in a long history of giving meaning to the securities laws through iterative application to new situations. It's sort of how it works. We brought cases with eel farms, ostrich farms, prime bank securities. They were all over the place on the internet. And I appreciate the idea that, hey, these aren't securities. But back in 1929, after the crash, the SEC enacted the 33 Act to say, hey, if you're raising anything that remotely resembles any sort of investment, raising money from people, you have to follow this framework. And then the 34 Act followed by saying, hey, if you're transacting in securities in any way, shape, or form, you have to register and subject yourself to audit, hey, if you're transacting in securities in any way, shape, or form, you have to register and subject yourself to audit, inspection, and examination, and all sorts

of other rules. And then the 40-yard came in and said, hey, if you're aggregating these investments in mutual funds or you're advising people about investing, then you have to meet these specifications. And they did that all to protect the world and the US, of course, from systemic risk. And when something new comes along like this, the SEC is specifically tasked with this job. And you can't say that they're losing. You just can't do it. You got to read all the cases. I just can't agree with that. I'm happy. Most of my writing is anti-SEC, but I don't see it. So go ahead, Scott. John, I actually agree with you on the Ripple case. I don't think people should rely on that. I think it's a terrible decision and it's not in step with the rest of the way we understand

how it has to apply. I actually think you're totally right about that. I don't see though, how you can say the SEC is not acting politically. If you, for example, look at Gary Gensler's statements upon the approval of the Bitcoin spot ETF. Like, I just don't think you can make a case at this point with a straight face that there is not a at least certain parts of the Biden administration that are taking an ideologically anti-crypto stance, clearly being led by Elizabeth Warren, but then reflected in the way the SEC talks about this stuff and talks about a largely non-compliant industry doesn't provide a path forward. Even if you think that most of these things are technically investment contracts, and maybe most of them technically are investment contracts, this is not the way you interface with an industry when your goal is investor protection capital formation.

This is the way you try and shut something down. Well, here's where I have the exact opposite view of you. And it's kind of funny because I'm really taking your side and you're taking mine. So I love it, Zach. I love it. But Gensler voted. That vote was 3-2 for the Bitcoin spot ETF. He voted against the two sitting Democratic commissioners. And for those who don't know, the SEC is made up typically of five commissioners.

One of them is chair. And the chair and two other commissioners are typically from one party. One time there was a chair that was an independent, but she was leaning toward Democrat, I guess. That was Mary Shapiro. But generally, that's how it works in terms of political appointments when you have all five there. Now, Gary Gensler voted against the two when he approved. He was the deciding vote for approving the Bitcoin spot ETF. And it was a crazy approval because at the same time, he did what one of the other speakers was talking about, this kind of merit-based regulation where he started saying, we think this is a terrible investment, but we're approving it.

And so I agree with that too. That's kind of like a regulatory schizophrenia. And so he was acting in that instance, not with the Biden administration, because he was acting against the other two Democrats. And in all the years of my following the SEC, including the 20 years that I was there, I can't recall a time that a chairman voted against, a chair voted against. John, can I ask, I know the point you're making, but he did it begrudgingly, to be fair, right? He basically like cried on his way home. But was there ever a case in the past where you had that happen or didn't have it happen with a court case? Because Gary Gensler very clearly said the courts have spoken. I can't do anything here. I don't know. So did that make it

different or no? I don't think so, because I read that decision very carefully and I listened to the argument. The decision didn't mandate, the decision could have easily allowed the SEC and this was- Come up with another reason, right. To come up with another, as opposed to, here's a good example, Scott, perfect example. One of the things the SEC constantly does wrong is they enact rules without a proper cost-benefit analysis. And the Administrative Procedures Act requires them to do that. So they constantly set forth a rule, they vote on it, they approve it, they enact it, and then somebody files a case and it was

typically Eugene Scalia who was arguing a lot of these things. They didn't engage in an appropriate cost-benefit analysis and then they would have discovery and they'd learn that, you know, three people from the economic office of the SEC sat around for two hours and thought this seems to make sense. And the rule would be the court would rule that the court would rule that the rule violated the Administrative Procedures Act and they would dismiss the rule. So in that instance, it's definitely, you know, it would be a pretty serious thing for the SEC to just reenact the rule again, even though the court had said that wasn't the kind of decision in the Bitcoin spot ETF. It just said, hey, this was an inconsistent decision, so we don't like the analysis. But the court couldn't and didn't order the SEC to take any action. But the point I'm making is... Hold on, I'm sorry. I think that's kind of a misleading

way to put this, right? The SEC gave the same one argument for 10 years why we couldn't have a spot Bitcoin ETF. They didn't talk about all sorts of other issues that they theoretically absolutely legally could have, like custody. They just said market surveillance, market surveillance, market surveillance. They, I think, did not expect the way in which these companies ultimately lawyered up. And one, under the Administrative Procedures Act, it's an arbitrary and capricious standard. They were caught red-handed saying something that you literally can't come up with a rational justification for. And it's the only justification they've been using for a decade. I think their hand was more or less forced. It is technically true what you're saying. The court didn't force them to approve the ETFs. But I think practically, it kind of did. And this is where

we're getting back to the SEC acting politically. They didn't really have a leg to stand on at that point. And like, I'm not aware of any sort of, like majority opinion, like we saw from Gensler, that is so sour grapes, where he says, the SEC's job is not to take a view one way or another on assets. But here are all the terrible things about it. You're right. You're absolutely right. You are absolutely right. It's disgraceful. And I was disgusted by it from my side of the coin, and you were disgusted from your side of the coin. I think we were equally disgusted. I think there had been quite a few decisions and cases and development in the crypto marketplace since the time of their initial rejection of the first Bitcoin spot ETF,

that there were plenty of new reasons. For example, Binance and Coinbase had not been sued when the SEC first denied approval of the Bitcoin spot ETF. So those facts alone, the fact that the industry was essentially not operating rogue, was operating unlawfully. Remember, the SEC says that Coinbase is operating unlawfully right now and says that Binance is operating unlawfully. So those are very serious allegations, and they hadn't been made public before the first Bitcoin spot ETF rejection. But I get it. I think you're right, Zach, in the sense that if I were chair and I heard that decision, I would think, OK, we've got to be really careful here. I want to I want to these this court seems to be against it.

But again, it was just one court, one circuit court. There are plenty of circuit court splits involving certain SEC operations. You can't always get unanimity amongst these circuit courts. They've gotten pretty political as well. So they So both arguments, I think, are valid. But I do think I don't see how it can be political when the guy voted against his own party. But I don't know. You're right also in the sense that when I did work at the SEC, it was pretty rare that I ever heard from anybody in the White House or anybody in the staff did, but there were certain SEC chairs who would have certain staff people who formerly worked in the White House or formerly worked on one of the committees on the Hill. And I also think you're

right. I don't think, I don't know, most SEC chairs that I've met are fairly Machiavellian and they're going to do what they think they want to do, and they're not worried about their next job. They're not worried about anything, especially when they're like – a lot of them are really, really wealthy. They just don't care. They're going to do what they're going to do, and no one pushes them around. That's generally my view of SEC chair, having spent a lot of time with a lot of them. Yeah. Dave, what are your thoughts? Okay, go ahead, Eleanor. Eleanor, you did have your hand up as well. Go ahead, please.

Sorry, really quick, really quick. So just pertaining to my article, so we figured out that some of the recipients that received subpoenas from the SEC in regards to the Ethereum investigation, the reason we didn't know about all of this going on for the better part of a year is because the SEC asked them to sign confidentiality agreements so that they could receive information about the progress of the probes. They were basically like, you know, we'll tell you what's going on as long as you don't talk about this publicly. Is that common? Is that something the SEC does often? I've never heard about that until you just mentioned it to me at this moment. That's why I love Eleanor's reporting because she's digging in.

She's got stuff going on. I just love it. I would never agree to anything ever. I give you a subpoena. You can respond to it or you cannot respond to it. But sometimes there are what's called common defense agreements. So there might be four or five people that are all being investigated. And then they immediately, this is very common, they immediately set up

shared defense agreements where they can share information with one another without violating the attorney-prime privilege. I'm not sure. I mean, I don't know exactly how those work, but you know that they exist because sometimes when you show up for testimony, to take testimony, you know, there are 19 lawyers in the room. And they can all sort of claim in some way, shape, or form that they represent the defendant because those are the only people allowed in the room. And, you know, those lawsuits, by the way, you know, these crazy lawsuits, I had one of those filed against me. We were taking the testimony of a dissident director. He had left the company, a big industrial company, and we wanted to take their testimony. Their lawyers, big-time New York lawyers, heard that we were taking the testimony and demanded to be present.

And I said, you can't be present. You're not a party, and you're not a lawyer for the party. And so they filed a lawsuit saying the SEC was operating unlawfully and doing all these terrible things and charged me also. And it never even, it was dismissed immediately. There was no case in controversy. So, but back to your question, Eleanor, I've never heard of the SEC saying we will share information with you if you promise to make it non-public. I've never heard of that. I certainly would never agree to that. I mean, why should I agree to that if I'm the SEC? What do I have to benefit?

But I would never agree to anything anyway. Go ahead. So that dovetails with the two points I wanted to make, because I have to jump in a second. The first, John, this is going to compliment you, so it's the opposite of a personal attack. The SEC, when you were there, was a very different institution. I would be willing to bet that the vast majority of the cases you brought in your 20 years were alleged fraud where there was allegations of harm to investors or market manipulation. Most of these cases have nothing to do with that. They are procedural. They are jurisdictional in nature. There's not even allegations of harm, and that's relevant. And Hester has made, Commissioner Peirce has made this, you know,

an art form in understanding, you know, why. It's because the fact is, is those rules that you talked about are very, very old, and there's literally no way, there's no allowances for, among other things, non-corporate entities to be able to even file for a registration statement. So that's thing number one. Frankly, your SEC was a different SEC than this one. And I still have a lot of friends down there. And, you know, look, I've talked to multiple people at the staff level over the last couple of years, and the morale isn't good. And it's for reasons like this. So effectively, what you dealt with is different. But there is one point you made that I really do want to push

back on, which is this notion of the SEC's win rate. The SEC's win rate is so high because most of what they do, the companies on the receiving end, it is cheaper, and I mean dramatically cheaper, to settle with the SEC than to fight because of how much they have to pay their legal fees, etc. And so it's an extremely asymmetric outcome. Some would call it a protection racket. I think that's unfair. Honestly, maybe with this SEC it is. It certainly wasn't 10, 20 years ago. But the reality is, is that win rate is artificially inflated. Also, the fact is, is a lot of what happens, the SEC is selection biased. When there is fraud,

it is absolutely right for the SEC to go after it. I think most people in the industry want them to go after fraud. And so those cases, yeah, they're going to win. Why are they going to win? Well, because really bad things were done and the SEC only goes after the ones that they have good evidence on. So it really is very different to compare that to these procedural jurisdictional cases such as the Coinbase one. Yeah, I get what you're saying. And you're right. Like, in my 20 years, I think 99.99% of the cases that we brought, and I have them listed on my website. You can see the ones brought when I was chief. Most of them had a parallel criminal component, and I was a tree prosecutor as well, so I had a certain feeling about the kinds of cases we should use our resources for,

which were the most egregious fraud ones. But I think that when you call these procedural, these are critical. Section 12 and Section 6, the broker-dealer registration and Exchange Act registration provisions, typically you do have fraud when you're bringing those cases. In Coinbase, they don't allege any. In Binance, they do. But I still think those are critical. You've got to go after it. They call it gatekeeper theory. And that was always a big use of resources in the 90s and into 2000s. If you can get the gatekeeper instead of all the people abusing, you're in a better place.

So I think that's a noble way to look at it. I think it's a very way to look at it. I think it's a very smart way to do it. And Coinbase is not the only crypto exchange that have been charged. I mean, multiple ones have been charged. So they're being consistent on that. As far as morale goes, I would say the last time the SEC staff had really good morale was when after 9-11 and Harvey Pitt was chair and he went to New York himself with his general counsel and they somehow together within five days got the New York Stock Exchange back up and running and came back celebrated. And I had this SEC jacket, I would wear it and people

would say, that's great what you guys did. But I pretty much stopped wearing that jacket within three or four years after that because I'd wear it and risk getting like eggs thrown at my face. So I don't know that morale was, it was great in our group because we loved what we did. And I think for a lot of enforcing people, that's just the way it works. You're doing what you can for investors and you're having a legal career that you never dreamed you could have to just try and make the world a better place. And it's very addictive. It's very hard to leave because it's like a cradle.

You know, you all take care of each other and you get this feeling every day when you come to work that you're making the world better. And I found it very hard to leave. And once I did, though, I found myself much more comfortable on the defense side, much more comfortable thinking the SEC was overreaching the FBI. There's a lot of SEC attorneys on the defense side, buddy. I know. I like it more. I like it more. I didn't ever think that I would. And I'm better suited for it. So I get what you're saying, though. I don't think morale is great. But on the other hand, we had a conference, Bruce Carton and I, you can probably see there's one of the panels about SEC and crypto. And I think we had the former head of the crypto unit and the current head of the crypto unit

on a panel on a conference before that. And they're doing great work. And they just got, I think, like 37 new positions. I think it might be the largest group in the SEC right now in terms of the five specialized groups. So that, now remember, if you guys all get organized and you elect Trump, and I'm not, I don't, I really honestly don't know who I'm going to vote for, but I don't think I've ever voted Democrat, maybe once or twice in my life. So it's hard. But I think that if you guys get organized, like Anthony Scaramucci says, you can be a really important voting bloc because I think that Donald Trump has completely changed his tune on crypto. You know, he was very much in alignment with Hillary Clinton and Maxine Waters in that crypto was a plague and the dollar was supposed to rule. But he's obviously a few times now indicated a change in tone. And if you guys get together in the swing states, you know, you might be a really important represent.

Other people disagree with me on this, but I feel like you all are a very important faction of voters that could swing the entire election. You know, again, I'm not a political person, so I could be wrong, but you've got a lot of very passionate people. I have a serious question about morale at the SEC. What was morale at the SEC like after several years of missing the Madoff-Ponzi scheme? Oh, it was bad. Yeah, it was bad. You know, again, people really, there was a lot going on at that time. It wasn't just Madoff. I mean, the Madoff myth, you know, look, there were certain enforcement directors that I worked for, and I was counselor to two enforcement directors in addition to being chief of the Office of Internet Enforcement. I was counselor to Steve Cutler when he was director, and I also was counselor to Linda Thompson for

a short time. Well, actually three, and I was also part of the group advising Dick Walker when he was director. And Dick Walker and Steve Cutler were incredible enforcement directors. And before them was Bill McLucas, who is the defense counsel for Binance, although I think his firm has pulled out of that. And before Bill McLucas was a guy named Gary Lynch. Now, when we were under Gary and under Bill, I mean, I worked for Bill for probably the longest period and under Steve and under Dick, I would say the division was very happy. These guys were incredible leaders. But after the various different crises, including Madoff, I think there was a real drop. And it was hard. It wasn't hard within the building.

How do you think the morale was after they missed the FTX Ponzi as well? I don't know that that was something. I think there were so many investigations going on at that time. And again, the SEC had brought a bunch of cases involving... I mean, so the SEC missed the two largest Ponzi's in the history of the United States. Yeah, that's true. That's true. Yeah, I don't disagree with that. I think, but there are different paradigms. I mean, FTX was not regulated, so they had no insights. But Madoff, they literally

had auditors and inspectors and examiners inside of Madoff looking at things, and they completely missed it. It was ridiculous. And whistleblowers. And whistleblowers. Really, Markopoulos. I mean, when they missed it, it was pathetic. It was terrible, terrible. But you know what happens. But it was terrible. You could say the same thing really just from a former FDIC person, like, you know, the banking regulators, the biggest banking crisis too. So we just have to be careful, like when we discuss like, what an agency is doing over time. John, I had two quick questions since you gave me a thumbs down. And again, this is not I'm just kidding around. Like, no, no, no, you're fine. Look, as a former regulator, one thing I think is that I'd like to know, because I was I've never worked inside the SEC is, where is the SEC right now with this consensus case? Because, as you say, a Wells notice is sort of this like starting a conversation. And so it isn't just a PR stunt at this point, consensus is actually sued. Let's say you're there at the SEC, like you sent them a Wells notice. And then the answer is that you as an agency get sued. And whether it's the SEC

or any agency, it's a big deal to sue the agency itself. Are we going to see the SEC actually come out with its formal response to its Wells notice like nothing happened? And then what about the merits of whether Ethereum is a security or not? Those are great questions. And I didn't think of it. I don't think the SEC will come out. So who responds to that lawsuit that was filed by consensus? Not the enforcement division who are bringing the case.

For instance, when I got sued, it was the general counsel that represented me, okay, and the SEC enforcement. You can't represent yourself. So there's an office in the general counsel's office that is in charge with defending the SEC, and they're kind of supervised by a Department of Justice division that also works on all these civil claims because they have, you know, very important ramifications. So that lawsuit, you know, like I said, it's highly unusual because the Wells process from the SEC's perspective is 100% non-public. So the SEC is not going to come out with a statement saying, hey, we believe in our Wells and we stand by it. You can read between the lines of, I would recommend that everybody read a speech from Gerbier Gruel, who is the current enforcement director, who seems pretty amazing to me.

I've never met him, and I love criticizing SEC officials. But he wrote a speech at SEC Speaks about a month ago, and he really laid into all the, what he called the verbal gymnastics of all of the crypto companies and the types of defenses that they do. He calls it a decade's worth of verbal gymnastics that are just a backhanded way of saying, quote, we want a different set of rules than those that apply to everyone else, unquote. A decade's worth of arguments that have served as nothing more than a distraction from the very real issues and risks that the crypto markets present for the investing public. And most importantly, a decade's worth of arguments that have been serially rejected in one way or another by court after court. And then he has a footnote in there listing 9,000

cases. So I think in answer to your first question, the enforcement division is just going to go about their business. They're much more likely, I mean, to me, when they brought this Wells, they probably did a lot of thought. I always cleared my Wells with the general counsel group beforehand, you know, just to see, to make sure that everybody was on board, that this was the right thing to do. This is all really, really compelling information about how the lovely SEC works. The truth of the matter is, is that when the SEC makes massive mistakes like Madoff and FTX, there's no accountability, nothing happens. Morale might go down just a little bit. When the SEC

takes action and makes mistakes in those actions, companies are destroyed and ruined. So let's move on from how great the SEC is and interested in what the SEC is doing. It kind of makes me sick that another guy said on this stream that we should be careful about holding people accountable about what some regulators do or don't do. Seriously, billions of dollars and hundreds and thousands of people were absolutely destroyed from Madoff and FTX. But, you know, we should be careful. All right. All right. You know, talk bad about certain people.

You know, I'm just explaining the process. And I don't want it to be the John Reed Stark show either. So let's move on to something more. Andrew, with all respect, I was really trying to get here John's response to what I was asking. We've heard enough of John here today. Andrew, I don't have to be here. Peace out, John. If Scott wants me to go, I'll go anytime.

I'll leave anytime I was invited, and I'll leave anytime. You don't have to invite me. You don't have to bring me back. You don't have to let me talk. You can mute my microphone. Okay? The point I'm making here is that the SEC and morale versus ruining lives, and we kind of missed that one. We punted on that one. Gensler met with the founder of FTX, SBF, a bunch of times, but won't really admit it, won't be transparent about it. I met with officials from every entity all the time when I was chief. SBF a bunch of times, but won't really admit it, won't be transparent about it.

I met with officials from every entity all the time when I was chief. You met with Madoff and those folks? No, no, but I met with the general counsels of every online brokerage there was several times, chairs me with people all the time. There's nothing wrong with it. You can make it out to be some evil conspiracy, but there's nothing wrong with it. You can make it out to be some evil conspiracy, but there's nothing wrong with it. John, Andrew. It was a conspiracy. You guys just didn't do your job.

Not relevant to the conversation today, guys. I'm sorry. We could argue about the merits of the SEC endlessly on a different basis, but we started this talking more specifically about Ethereum and what that means. I think we got great insight into how the SEC could be looking at that and approaching it. Hong, I see you have your hand up. You're uniquely positioned to have to actually pay deep attention to these sort of things as a president of OKEx. Thank you. Thank you, Scott. I actually have a question also for John. Because I think in the US, we've seen all these lawsuits starting from Ripple and then, you know, Coinbase, Kraken and ConsenSys and all the way to where we are today. You know, I think, Dave, you mentioned that, you know, unlike some of the other previous cases that private sector has with SEC for crypto, there's a lot at stake,

right? There's a lot at stake. We're actually an industry of innovation where ultimately we hope that everyone can be their own bank. And that has huge implications. So I think we see that, you know, SEC lawsuits with first centralized exchanges. I think that's actually the easy battlefield, right? Because for us, we have been here in US for a few years. We take listing process really seriously. We try to build very robust listing process, looking at how we test, looking for red flags, looking at compliance and legal analysis. So we try to have a closed-loop logic internally in terms of how we actually look at different assets.

So we feel ready if there is a case for us to, when we have to fight, we can fight. And I'm pretty sure that's how Coinbase has been feeling, how a lot of the other centralized exchanges in the US are feeling. I think exchanges is actually easy battlefield. The project is probably the second layer of battlefield. We see ConsenSys having this lawsuit with the SEC, bringing that argument to the court regarding Ethereum. I think it would be really interesting to see how it plays out. And if you ask me, my sense, my personal sense is that this, since there is no clear regulation, no clear rule in terms of how crypto should be viewed, how, you know, exchange and every activity in this space should be viewed in US, a lot of things will have to play out in the court.

And I don't know if it will come down to your top 10 projects, for example, each one of them will have to play out in a court in US, thereby setting some precedents. And then I think the last battlefield is actually the real battlefield where a lot of the fight is going to happen, which is self-custody. How do we defend the freedom at the protocol level? When I see the news about SEC suing MetaMask, that's really the bomb that is being set out there. And I think that will in itself set a milestone as we see progress being made on that

front in court. And on the one hand, I understand that everyone is kind of infuriated and disappointed and frustrated. But I think on the other hand, that's just how things work out in the U.S. when there is no clear rule about this, which I think is understandable because crypto in itself is very new, right? It's, you know, the historical regulatory framework assumes that, you know, every different pieces in financial sector is being regulated separately. But in crypto, we bring everything together. And how do you actually look at that? So I think it's actually a good thing.

It's frustrating, but it's actually a good thing that right now we actually seeing this battlefield being accelerated. The battle good thing that right now we're actually seeing this battlefield being accelerated. The battle has actually happened right now. So I'm actually curious, John, how you think about the lawsuit around Metamask, how that will play out over time. Yeah, quickly, before we jump to John Hong, I just want to reiterate how important those points are and make the point that the exchanges are sort of battle one. As you said, they're well capitalized. I think consensus and the Ethereum Foundation are uniquely positioned because they actually have the funds to fight. But as you go down that curve, there's not going to be many projects that can afford that fight with the SEC.

So I think that that leaves it on the bigger players to sort of win or fight for the entire industry. I also think it's important to note that if you're going to go into the then they fight you phase, you'd rather be on the offensive this time than the defensive, which I think the industry is certainly looking at. And then your last point about self-custody, what we've seen this last few weeks has been really alarming to those who aren't paying attention. It's not only the MetaMask case that you mentioned, but the FBI put out their guidance about using unregistered money transmitters. And we have the

IRS now showing sort of their hand with the new forms, indicating that everybody's effectively a broker and we'll need to sign these. And increasing the KYC AML really, really major attack here on self custody behind the scenes and all at once from multiple three letter agencies. Sorry, john, I didn't mean to interrupt. I just wanted to sort of, you know, give a little more depth to the audience. Yeah. And the reason I'm asking that also, john is because, yes, we have us, you know, as a major market, and we are all looking at how U.S. evolves. And there is a lot of uncertainty in the centralized world in the U.S.

And same thing for self-custody. But if you look at other markets, Europe, Hong Kong, right, other jurisdictions are moving on in regulating the centralized world. But they're also thinking around how they look at self-custody. And my sense is that a lot of the other regulators are also looking at how U.S. will tackle this in court. And I think whatever is happening in U.S. courtroom around self-custody will actually potentially set the tone, not only for U.S. courtroom around self-custody will actually potentially set the tone, not only for U.S. market, but also for the rest of the world in the technology realm. Yeah, those are all phenomenal questions and also some excellent points. I think you're right, that this is an evolutionary process from the SEC, like I said before, starting with ICOs, starting with simple agreements for future tokens, staking, crypto lending products.

And the SEC was kind of late to the game on that. A bunch of states brought cases against BlockFi and Celsius before the SEC did. But the SEC should have brought them at the same time as the states. And then you move into these crypto intermediaries that are clearly centralized. And then you have this next phase. I think you're looking at it exactly right, where owner of record is the Depository Trust and Clearing Corporation, right? And they're non-custodial. But it still falls under the definition of broker, and they're still regulated. And what does regulated mean? It means audit, inspection, examination, licensure of everyone who does anything there, archive, net capital requirements, all sorts of requirements with respect to

record keeping and communications. So it's an incredibly onerous framework. And that's what the SEC wants for all these entities. And I don't think these decentralized entities are going to succeed with the defense that, well, hey, there's no clear guidance. Because first off, I mean, securities regulation is not meant to be precise. It's intentionally drafted to be broad and all-encompassing. If you look at Section 5, Section 6, Section 15, Section 10b, clarity is not just uncommon. It's deliberately avoided. And if you look at the Supreme Court cases, the best one is

versus Reeves, R-E-V-E-S, where it was Justice Thurgood Marshall who talked about the fact that people can call things innovation, new or different, but the bottom line is the statute is written to capture these things that were unanticipated or even unimagined. And second, those securities regulation is primarily a principles-based legal framework. There already exists extraordinary regulatory transparency and lucidity regarding crypto. You can read any of the cases and you have very lengthy opinions written by judges. You have very lengthy motions written by the SEC. That's how the world works in terms of securities regulation. The same goes for insider trading. The same goes for muni bonds, for derivatives products, all of these things. There aren't

specific rules. There may be some rules that talk about them, but generally, it's a general framework, and the courts are used to enforce that. And that's why I think Gensler said something that was very poignant where he said there's no such thing as regulation by enforcement. He just calls it enforcement because that's how it works. sort of grouses for this regulatory clarity. Whenever any specific regulatory crypto-related rules are promulgated or proposed, most of the time the crypto industry cries foul. They file large legal challenges. The best examples are even tornado cash, or you could look at the rules that are supposed to have came about from, I think it was the Infrastructure Act, that require reporting of transactions. You want to buy a Rolex with crypto on 47th Street, that's got to be reported,

or if it's more than 10 grand, or the treating any of these exchanges, giving them then the same responsibilities that have to be given, reporting responsibilities as with traditional brokerages, meaning they have to file notices with the IRS about any of your trading. And that's why you don't see a lot of IRS cases against people for failing to pay their taxes on stock transactions, because the IRS has that information. And if you look at what the IRS has done, and they got an additional $80 billion to do more of it, they filed these John Doe lawsuits where they sue an entity that's an exchange and they just say,

we don't know if anybody's done anything wrong, but our data indicates that people aren't paying their taxes on crypto, so we want to see all the records. And they've won every single one of their John Doe actions. So you do have a very, very aggressive SEC and a very, very aggressive other agencies. And I think with every new tech advancement, those whose behavior questions have always said,

so why didn't the SEC tell us that this behavior is illegal? And you argue that, hey, there's no black letter rule. The government failed to provide fair notice and violated our due process rights. And this is a misguided, or even as some people on this call were saying, a nefarious political proclivity to expand power and broaden jurisdiction. But the SEC's approach is rarely improperly expansive. The SEC typically adopts a reasoned, a fairly common sense application of the basic requirements of the federal securities laws, especially when it comes to crypto and all the rest, because they really do threaten individual investors. Most laws on the books, regulatory

clarity is anathema to securities regulation. So I think securities laws can adapt well to technology. Again, I was chief of the Office of Internet Enforcement for 11 years. I considered myself an internet evangelist. I knew the internet was being used for good things and for bad things. But I knew, look, our top priority, at least, and I was special counsel for internet projects from 1993 or 1994 to 1998 before I became chief. And the idea was I ran around the country as an internet evangelist. You know, again, saying how great the internet was and how important it was. And we were just trying to do what we could

to stop the bad things from happening. I set up the first computer at the SEC with internet access. I've set up the first account that people could use to contact the division of enforcement. I set up the first account on AOL where we can announce our trading suspensions on certain AOL platforms way back when. That shows you what an okay boomer I am. So the bottom line is, I think when it comes to crypto, and I'm sure there are people on this call that would disagree, you have very, very serious dire externalities. Ransomware, drug dealing, human sex trafficking, especially in human sex trafficking especially in places like uh human slavery in places like cambodia um really terrible terrible crimes that have been detailed nuclear weapons proliferation in north korea and then people come back and go well same goes for

fiat that's not really true the statistics don don't bear that out. Allison Jimenez has done an amazing job of debunking all of that. And the bottom line is, these are bad things. I lived, I teach in North Carolina. And when the Colonial Pipeline ransomware attacked, it was almost anarchy because nobody could get gas. You couldn't get home from the airport because of this ransomware attack. I've heard you talk about Bitcoin being the leader of ransomware. So I'm trying to figure out your thoughts on Larry Fink being a Bitcoin evangelist, Bitcoin ETFs being approved. If Bitcoin is this horrible ransomware, drug trafficking, human trafficking thing, why has it been embraced across the globe? It hasn't been, number one, in my opinion, anyway, it hasn't been. It can't be used as a

currency very well. You have to pay capital gains tax on it every time you use it if it's made money and it's not accepted. It's a hefty transactional cost. So I don't see it as that, at least in the United States. But more importantly, I don't care. Wait a second. Wait a second. Let me respond. Let me respond. Let me respond. Let me respond. Thank you. So I see all these people in traditional finance. They love it because they can make huge amounts of fees on it. They love it. And I don't blame them. It's a tremendous opportunity.

The Bitcoin ETFs have huge fees? Absolutely. You don't think these people are getting rich from it? You don't think they're doing it out of some benevolence? There's massive fees on the Fidelity and BlackRock ETF products. Let me tell you this. The crypto intermediaries have become billionaires, okay? And let's face facts, they're billionaires.

And they're building it on this idea, this libertarian angle that, hey, it's a great thing for people to have control of their own finances. And I get that, but I don't agree with it. You know, I just don't. I think that, you know, the 29 crash and the 33 Act and the 34 Act and the 40 Act are critical for systemic risk. And I realize there are going to be bumps in the road, but for the most part, these market protections have worked miraculously well, which is why all of these companies want to do business in the United States. So the fact that these companies want to do business outside of the United States, I always remember Judge Sporkin, Stanley Sporkin,

who was the first director of enforcement, a fierce Democrat, but at the same time, a Republican appointee, he always said, look, if you think that this sort of regulation is going to move innovation offshore, have at it. Go do it. Because it'll never happen. Everybody wants the marketplace in the U.S. And you can see it in Binance's, in the text from CZ in Binance. He was desperate to keep these American cash pipelines open. Yeah, I didn't ask about CZ and Binance. I asked about Larry Fink and BlackRock. Okay. Do you think that they think it's ransomware and it's used for drug trafficking and human trafficking? Yes, they don't care. And they don't care.

Okay. You know, like I said, I think you can find – I was at the FBI headquarters not five or six weeks ago discussing the plague of ransomware. And I asked an FBI agent there, senior FBI agent along with senior DOJ officials, I asked him, how often do you recover a ransomware payment? And he said, never. And I said, how often do you capture a ransomware attacker? Never. And I'm a ransomware expert. Most of my business is helping out companies who have been hit by ransomware attacks. That's what I did for five years at Strauss-Friedberg, global data breach response. And I can tell you that these attacks are horrific and they're just getting worse.

And they, but for Bitcoin, they would not exist. Okay, but for Bitcoin, they would not exist. I think we should go back to our core to build a software environment. Yeah, I agree with that. Andrew, stop, please. Guys, everybody chill. We're going down the, let's attack everything.

We're not doing this. The topic is Ethereum. We don't need to discuss Bitcoin ransomware right now. Eleanor, go ahead. So, I mean, my question to you, like we just heard you lay out all the things, all the bad things that crypto is associated with, sex trafficking, drugs, sex, drugs, rock and roll, whatever you want to whatever you want to pertain it to. I love it. I mean, arguably the same thing happens with the Internet. Right. I mean, probably worse things have happened on the Internet. So why my question to you is why why is crypto so vilified at the SEC? I mean, it can't be that much different to the Internet, right, in terms of all that stuff? No, I think that's a fair point, but I think this is how I would answer the question.

First of all, the Internet has such incredible benefits to the world. They're just so infinite, I couldn't even begin to list them to the transformational technology, the innovation of the internet. I don't see crypto having the same potential. Other people can disagree, Eleanor. I absolutely respect someone's position if they want to disagree with that. I don't see it. So I don't see the costs somehow beating the benefits, you know, or the benefits somehow beating the costs. That's how I look at it. And, you know, yeah, I wrote, if you look back at my writings from, you know, I think I wrote an article in 98 or even earlier with Joe Sella, who was the head of market

surveillance, about how amazing the internet was, but here was what we were doing to police it. And there were a lot of people at the time who thought, they called it disintermediation. And there was a real movement at the time with all the online brokerages. They were all brand new that we would cut out the broker altogether and just have, and they called it disintermediation. And it was a very important buzzword, muchword. It's exactly the same as decentralization. The best example was Spring Street Brewery, which was really an innovative, exciting idea from a guy from Kerbath where he wanted to sell beer and shares in this Spring Street Brewery directly to the public. Then he wanted to set up a room on the internet where people who own those shares could meet one another and trade. And he wanted to set up a small exchange where people could buy and sell in safety. And he was a remarkable guy, he still is, who did that. And it was an exciting idea. But it was sort of like

one of those, none of you are old enough to do this, but when I took driver's ed way back when, they would have these films, and my daughter just got her license, so I was telling her about it. They'd have these films where they give you every conceivable problem that you would encounter when you were driving, like someone running in front of you, a flashing red light, a storm, every conceivable. But when you looked at that hypothetical at Spring Street Brewery, although it was a great idea with the best of intentions, it violated just about every provision of the 33 Act and 34 Act and 40 Act. So he was never sued for anything. The SEC met with him, talked about everything.

There was a commissioner at the time, I'm forgetting his name, but he's still around, who was a fierce advocate for what the ideas behind Spring Street Brewery. So there was a real movement at the time to say, hey, let's disintermediate. And in many ways, he was right. He was an amazing pioneer because the internet has empowered investors in a way that is unimaginable. You have access to every bit of information, and you can trade your shares instantaneously. And you look at Robinhood. It's an amazing company. My friend Dan Gallagher is their general counsel, and he's a former SEC commissioner, a former

head of market regulation at the SEC. And they make mistakes, but they do an amazing job. I'm not paid by them. I have nothing to do with any of them, although I really respect and admire Dan. So I see a lot of incredible things that the internet has done in the area of finance. I just don't see the same benefits happening from crypto. Instead, I see what Zeke Fall wrote about. I see what Ben McKenzie and Jacob Silverman wrote about. And I also see the ransomware every day that really, it terrifies me. So that's how I look at it. But John, would you consider self-sovereignty or self-ownership as anything.

They don't want to give people their own choice. And also from speaking from our experience, we actually operate globally. So we see customers in different jurisdictions. I think a lot of people in America are just living in a bubble. They don't really appreciate the benefit of having an ability to disintermediate. Because people in Turkey, people in Argentina, they suffer from high inflation. They suffer from banks who pull the rucks under them. So they really appreciate the opportunity to actually, once they receive salary, they immediately turn their salary into either Bitcoin or USDT or USDC.

It's a great way for them to be their own bank. They can then decide how to actually use their wealth. It's a huge benefit. It's a huge benefit. I think that's a very fair point and also on your point on uh ransom uh using bitcoin or whatever other you know crypto assets to to uh to get ransom our team actually we have actually a pretty big legal and compliance team we invest very heavily in uh law enforcement cooperation we actually help a lot of uh law law enforcement agencies in different jurisdictions

to actually track down criminals. And you know what? Crypto assets are extremely effective in tracking those down because everything is on chain. We help agency in US, we help agency in Asia, in Thailand, in Latin America. Like it's extremely effective. That's why I think there is not much as of adoption of Bitcoin as for criminals. It's because it's too transparent. Only those who don't know enough about crypto would actually use it for that. I have to disagree. And also, John, I just want to also, just real quick, I just want to add to that, like, you're saying that no one ever gets money back in

ransomware, but I did just put up in the post, the Department of Justice talked about during the Colonial Pipeline hack, they were able to recover 2.3, you know, million of what was stolen. So I just want to be clear, it's not that they're never able to recover the ransomware. Okay, let me go over a few things. First of all, there are times where you will get... John, just really quick, John, just make it as fast as you can because we're going to end up going 12 hours. First of all, the crypto traceability, I've written an extensive article. I'll put it up on my website. I just disagree. All ransomware attackers would get caught. All ransomware payments would be recovered. It's just not possible. You might be able to find out where it is, but there are so many mixers.

I did a very exhaustive analysis, as did Allison Jimenez. So I disagree respectfully on that. And again, in my meetings with the FBI and DOJ, which are multiple, that's the same way they look at it. I mean, there are times you find a laptop in the popcorn tin under a blanket in a bathroom like they did for those two wackadoos in New York. But most of the time, you know, you are out of luck. Every single client I've ever had, you are out of luck. Yeah, but John, with all due respect, I mean, they recovered over half of the money from a Colonial Pipeline. That's not a random laptop, right? No, no, no. Once in a while, you can use traditional means, but it's typically, if you read the press release in that, it takes like 15 Alphabet

agencies and 10 other countries to work together to get it done. It's not something, I mean, I appreciate the fact that DOJ was promoting it, but it is extremely difficult to do. What's her name? The woman who was in charge of the crypto unit for DOJ, I was introducing her on a panel just no no lisa monaco is like an associate deputy attorney general uh this woman um yun young choy was the uh head of the crypto asset unit in the doj and now she's the head of the national security division and there's a quote from her talking about just how incredibly difficult crypto has made it for law enforcement to recover. So I'm going by what they're saying, plus what my clients are experiencing 100% of the time. But with respect to Hong's point,

and I'll be quick, Scott, about other countries, you make an excellent point. I'm not a world traveler. I haven't been to a lot of countries where this kind of thing happens. I was speaking at Babson College about a month ago, and there were some students who were clearly from countries where the currency is so terrible and the government's so corrupt that Bitcoin was their best bet. And I do think I do have sympathy for those situations. At the same time, you know, I read Ben McKenzie and Jacob Silverman's book where they went down to El Salvador to see what this was really like. And when you get into the minutia of their book, you realize that this isn't a good thing for El Salvador.

But, Hong, you make a great point. I don't know what's going on in those countries. I don't visit most of them. And at my age, I'm not likely to go there either. So maybe it's good in some other countries. I don't think it's needed in the U.S. We already have plenty of digital currencies. I get the libertarian desire to be your own bank.

I have very great sympathy for that. But on balance, I think it's a bad idea. Larry? The problem, I think, is that we're falling behind in the U.S. from this other technology, as Aung points out very smartly. And you talked about Binance a little bit, John, and I put up another post. If you look at Binance, the SEC did not play ball with the rest of the administration. And that was very clear in November of 2023, because the CFTC came out, the IRS came out, Treasury came out. And you talked about the SEC led to Binance being now jailed. That was DOJ. That wasn't the SEC. So I just want to be clear,

like when we talk about like CZ and Binance, it's in a very weakened state. And is, you know, we want to just be fair about the fact that the SEC is just one of many agencies. I was at the FDIC that represents the United States. And it isn't just that the SEC thinks crypto is useless and therefore it's not going anywhere. That's just not the case. I don't know about the idea of Larry Fink versus Ben McKinsey. I think I know who I'll take in that particular. What about Larry Fink versus what about Larry Fink versus Warren Buffett and Charlie Munger? I mean, Charlie Munger and Jerry Munger and Warren Buffett have been wrong now for a decade on Bitcoin. Okay.

Okay. Well, I'd rather be with Charlie Munger, Bill Gates, and Warren Buffett than some traditional finance guy. Even one of my best friends, Anthony Scaramucci, who I love and I would take a bullet for, I choose the other side. But that's not how we should do it anyway, right? Don't subscribe to groupthink. Who cares what these other people think? Do your own thinking. Do your own analysis.

I don't care what it is. Everybody's got ulterior motives. You know, I mean, I try to be as objective as I can. I make not a nickel from Bitcoin, shorting it, longing it, crypto, anything. I don't have a single crypto client. I've been asked a million times. I mean, maybe not a million from Bitcoin, shorting it, longing it, crypto, anything. I don't have a single crypto client. I've been asked a million times, I mean, maybe not a million, but a lot to be on all sorts of crypto things, projects, and the opportunity to get beachfront property, not beach view, not beach property.

Yeah, but where, John? But where? Is this beachfront in El Salvador? I'm just kidding. So I get it. But, John, one question I had this East Front in El Salvador? I'm just kidding. So I get it. But John, one question I had before that I just was hoping to get was whether you think Ethereum is a security like from Britain. I know you're not our lawyer, but. No, I think there are very strong arguments for it. I think that anything can happen in the courts these days and maybe you'll get some Texas judge in the consensus case. But I think there's very strong arguments. The development and management is largely driven by a small number of developments. These arguments have been made by the

New York State Attorney General. ETH, to me, it's not decentralized. It's governed by a core group of developers. I think it's promoted. I think they're going to lose on that one. But, you know, again, you could get a different kind of judge like we had in Durashko, like Judge Torres in Ripple, where the decision just seems, again, to turn the securities laws upside down. So it's possible. But, yeah, I've never written anything on ethos of security. I have written an article about why the SEC was not part of the Binance settlement. And I think I go through that very clearly. So I think there are really good reasons that they sat out that settlement. I don't think it was sour grapes or anything. I think it was a brilliant move. And you can just

look on my website or I'll post it on Twitter or something like that. So I think it'll be a good argument. And I think that the SEC seems to be digging in and leaning in that way. I've been wrong before. I didn't think they would approve a Bitcoin spot ETF until about three or four months. Yeah, but of course. I know. Well, I started reading Eleanor's reporting. It was Eleanor's reporting, and I was like, you know what? I think I need to pull back on this view that it's never going to get approved. That's funny. Yeah. I got say, so we have literally in the title Yield Nest here. And part of the discussion about Ethereum is that they've been building on it. And I want to ask

them, and obviously, I know that they believe in self sovereignty, it's liquid restaking on Eigen layer, which is not Ethereum. I want to ask them and having an actual project here that's trying to do these things in this environment and what that looks like for them. So I just wanted to move quickly to Yield Nest here. Yeah, thank you. I hope my sound is good. Thank you. An amazing, interesting space. Basically, I would say for me, this all doesn't come as a surprise. I think we're building a sovereign wealth layer here. I'm in crypto for a long time, worked with a lot of different protocols.

And I do think we're building a sovereign wealth layer here that's also self-regulated, right? We have a lot of things in place where people can check, where people can do their own research. And I think the general population would become much smarter and much stronger if they actually would just learn themselves about financial freedom, financial sovereignty, and do not like come begging to any regulator or government to save them.

I believe in free markets and that is also what we're trying to build with Yieldness, which is restaking, which is just an evolution of staking in itself. So any form of regulation or anything around that, like, yeah, of course, we do need to make sure that our industry is not overrun by a bunch of criminals. And I do think sometimes crypto gets overrun by a bunch of criminals, but that's also a feature of a free and open market. So we will fall and make mistakes. But generally, overall, I think we will. Yeah, we will be better as a space and and and i do think that it's very important for us to keep building that's what

i've been doing for the last couple of years for the last for years now in crypto uh i love this industry and i think it's here to stay um i have it restaking i think it is it will just harden the defy infrastructure so i think that uh that is why we're here uh crypto isn't can you explain to people what it is by the way yeah they're mother i don't want to take for granted that uh among these thousands of people listening they even know what liquid restaking is yeah exactly yeah i don't want to segue too much from the topic was such a good and interesting discussion right yeah i would say that restaking makes it so that we can export crypto economic security so the thing that crypto provides as a

sovereign money layer we can export that to other applications so that we can actually build essentially build systems that uh function uh yeah function on the trust of the Ethereum trust. And you can export that trust and build new sorts of application. And you can harden existing DeFi infrastructure. And basically, liquid restaking makes it possible for people that want to stake their ETH to also restake to other infrastructure pieces. And I always say, basically, you should stop staking your fiat at banks and start just restaking your ETH

to harden the DeFi infrastructure. And then overall, it's going to only get harder and harder to stop. And if any regulatory overreach comes, we just build harder and we will... Well, that sounds good to ask. Yeah, the next question there, then, I mean, with the topic in mind, the the sec even though they haven't outright said it there if

they're claiming that if it's a security or we get that deemed somewhere right that obviously impacts staking or your people's ability to do it how much would that impact restaking no that would impact restaking also by a lot, of course, but I don't think it's going to happen. I don't think any like staking or EVE is not going to be a security. It is mathematics, you know, like privacy is normal. Like, you know, I don't think they will be able to do so. And even if that happens, then the industry will repack

and only build ordering harder and harden itself. So and especially with restaking where we can then build other front end. So for example, if the in the EU attacking a lot of front ends, well, I think it's only good that they do that. Because a lot of projects that say that they're decentralized are just distributed. And this only forces us to build more decentralized infrastructure and be more critical on the distributed or centralized infrastructure. So I would say, great job.

And it's actually really good for the regulator to keep it clear that decentralized infrastructure, you know, like, okay, this is, you know, nobody can save you. People should get clear warnings warnings like now you're going into this decentralized place but in general there should if the government's overreach like people only flee and build in many places then let me ask you for the uh because the very important point i think that hong made earlier about self-sovereignty and self-custody more specifically all of you know you have to be able to have self-custody to be able to participate

in something like this so whether we fear if being deemed a security how much pause does it give you when you see them sort of taking these sideways approaches to it almost looks like banning self custody in the united states It's comical. It's basically we'll all move to desktop applications or something. And then we will find out a way to overcome that and actually only harden the industry. So, yeah, I would say it's good that we get attacked. It's good that we need to stay sharp um and i i feel hopeful and uh grateful uh that's a long way that we came because the industry got started in from a very grassroots

culture and that culture is still here and not going to go away i would say and so one of the advantages has been for someone who understands taking but wants to do liquid restaking, because we all know that yield became the big four letter word of the last cycle. So now crypto, you know, obviously talking about native yields again.

And what are the risks? Cause for being honest, you know, nothing comes risk-free. Yeah. So I would say that right now, the whole restaking space is a clear example of people just front running some,

like the thing that will come with restaking this might still be some time to completely fully build out but uh yeah there will be many many risks there's high qualification risk there is a risk of stay restaking to different services or things that might be very risky so i think that's for the users themselves to figure that out and yield nest kind of helps with that because we have independent risk organs for the yield nest risk team run by the lama risk team from from curve finance and uh yeah we are building out uh in a lot of independent research for people to to draw their own conclusions and i do think that people are smart enough to to look into these things.

I would also say that a lot of things in the industry where we have seen with Renzo and other ones who just offer like some sort of a point boost to leverage up your position without offering withdrawals, for example, is dangerous. And yeah, that's not good. So as an industry, we do need to learn. We do need to try to perfect ourselves

and educate people that are using it yeah so yeah i think the difference this time is that a lot of the risks were undisclosed in the last cycle i mean that's why people got destroyed obviously in c5 so how do we make sure i guess generally that people understand specifically the risks that they're taking i mean i think when you get to read liquid restaking by that point you're pretty sophisticated and crypto native right i mean we're not talking about grandma yeah exactly yeah i would say that i've been waving the the when usdt came out for example i wrote a whole article on this on the the llama risk sub stack

so there is places that are educating people in the right way. And we just need to form more of that. And our industry is maturing. So I would say that we are going into a mature part of the cycle, which will bring in much more risk disclaimers and things of that sort. And I think that people using these restaking protocols should think a bit further because loads of people have aped into certain LRTs without even looking into the code. Yeah, I was just going to ask you because there's a bunch. So how do you tell which one is different and how and what's superior?

Because this is so above my head right now. Exactly. Yeah, well, I would say mostly we just released on our Twitter page, like a comparison graph, right? And you can see always with these new primitives coming out and restaking is a new DeFi primitive that are still a lot of things to explore and learning about it every day. There's a lot of deep rabbit holes we can go into. That's for another time. And I would say like for YieldNest, we kind of have been building in the background and we're now going live with very clear risk frameworks

that not only make it easier for you to kind of separate and isolate certain risks, but also to actually on that same hand also focus on certain areas, right? So right now, all the LRTs out there, there's all the liquid restaking tokens out there, just basket all the different AVSs. And we are isolating those risks and we are making it so that the risks are clear.

We're doing a slow initiation of the yieldness protocol. This is going to be a fully decentralized organization over time. We have clear mandates for what we want to achieve, how we want to educate people. And we will follow those very clearly step by step. And I think that is a good differentiator for Yield Nest. You can go to our Twitter. And before the spaces, I just released that diagram that we wanted to release for some time.

And you can clearly see the differentiators or go to our test net and test it out yourself or wait until our main net goes live very soon as well. So a lot of exciting things ahead. Do you have another second?

I just want to ask you a couple more questions. I know I kind of kept you, but how large is the liquid restaking market as a whole right now? I just find it fascinating and I don't know so much about it. Yeah. So basically on Eigenlayer itself, it has over $14 billion restaked, right?

15, actually 15.67 on Eigenlayer. And liquid restaking of that side of things is again, another 13 billion. So there is a lot of excitement, right? And I would say that excitement mostly comes from the fact that Ethereum was the kind of like searching, how are we going to, and including myself, how is this new roadmap without sharding going to work?

How are we going to integrate all these L2s and things like that? And restaking is a very clear solution to that, amongst other solutions. But restaking is a way to actually also capture value to the layer one. And I think most people really like that. And yeah, it's going to make the base layer execution for any like layer two chain or any like parallel via parallel execution chain is much cheaper than doing that on any other network so it is going to be very interesting what's now going to happen with this new innovation that we we have seen on ethereum and it's nothing new because we have seen this over also in the cosmos ecosystem before

implemented in a wrong way. And even goes as far back as with Bitcoin and merge mining, where Satoshi Murakamotu himself even commented on that, the concept of like sharing the security of the base layer would make sense. The only issue with Bitcoin, there was the nothing at stake problem. And now with restaking, we actually solved this issue and are innovating further on that premise. Amazing. And guys, you can follow Yield and SFI

there in the description at Yield and SFI. Hong, I wanted to ask you a question since you're still here. Okay, go ahead. Just two minutes and then I'm gonna wrap. We're 45 minutes over time anyways. But like all staking, liquid restaking, Ethereum as a security, obviously, you know, OKEx has a really deep Web3 presence.

How do you decide whether to allow these things like this to be done on the platform and where? Just how do you even navigate that? Yeah, we actually have two parts of product two separate lines one is the centralized exchange and the other one as you mentioned is the self-custody wallet um on the self-custody wallet okx wallet is just like metamask and you know um every project is welcome to be connected to the wallet so that we can actually offer that gateway to people who use crypto on themselves. On the centralized exchange, as I mentioned, we actually have a, for initial listing, we have a listing process that we put every project through. The listing team would make their own recommendation and then legal and

compliance will do their evaluation and then bring everything to a committee for a vote. And even the listing team does not know what the ultimate result would be. So, you know, we try to button up and make sure that we self-regulate before the regulators give us a very clear guidance. Staking is more complicated, right, on centralized exchange. And again, we try to do what we can to find the lines and basically have a closed-loop logic internally to make sure that we feel comfortable. Obviously, that framework also constantly iterate based on new information we learn about projects, new information we learn about the regulatory framework and all that stuff. So nothing is all fully developed. Everything is kind of

in a fluid situation as we continue to iterate on that. But we generally feel comfortable in terms of how we actually run on the centralized side. Is OKEx similar as Bybit going into like, they have also OKEx also is going the layer two route, right? So I think all the centralized exchanges are all building up clearly options to move in on chain fully potentially if the regulatory environment becomes too aggressive? I don't know. I cannot comment on Bybit, but, you know, again, we have a centralized platform where we try to get licensed and register in different jurisdictions, just like Coinbase. The decentralized platform, the self-custody wallet,

that's, I think, where the real battle will happen in the industry. And I hope that we, as an industry, actually fight together to defend that freedom because it is, at the protocol level, there is really no national divide. You know, it is governed at the protocol level. And I think that's the ultimate freedom that we need to, you know, band together and defend.

We also work with Polygon and develop a new second layer protocol called OKX Layer. But that's a new development that is being worked on right now. All right. Amazing. Super exciting. I think for YieldNest and for all the things we're restating and DeFi space in general is going to boost ahead so fast. There are so much new innovations. And yeah, I think we're entering an unstoppable period. Yeah, I think most of it's going to move forward with or without clarity, right?

It just may not be available to us here in our land of the free home of the brave. I always say, what if Bitcoin had legal clarity when Satoshi Nakamoto started? Let's ask for a legal opinion. Yeah, what can happen? Yeah, what a great way to wrap it up. Yeah, guys, we usually only do an hour, but

it seemed that everybody on the panel wanted to interview John Reed Stark directly. And so, you know, we got 45-minute answers to four-minute questions. And I wanted to let it go because everybody seemed interested. Boyer, you need to speak. And Yield Desk, thank you guys for sticking around. I really, really enjoyed it. Yield Desk, go ahead. Get your moment. You can wrap us up.

Oh, no. That was it. Everyone said great stuff. All I wanted to say was next time. It was great. Next time for sure. And so, yeah. Really interesting. it's going to be very interesting i think to follow uh as we always have this continued story as to how the sec will uh deem these assets and if the market actually cares so we shall see to follow you now let's get a you know we're going to go live very soon so instead of staking your money at a bank or staking your money at some sort of a weird protocol just go to yield nest we we have a good yeah purist here so we want to we want to fight for the space i want to fight for stronger infrastructure and also of

course i'll try to make a healthy yield as well while doing so yeah a noble effort indeed everyone we'll be back tomorrow morning 10 15 a.m eastern standard time thanks so much uh for sticking around for almost two hours bye everyone thank you thank you bye