Unchained - DEX in the City: How Regulators Are Preparing for a World Without the Clarity Act

Episode Date: March 12, 2026

The crew discusses whether prediction markets enable “Bloomberg terminal espionage,,” wonder how to regulate markets that could be on anything, dive into why the OCC is saying no to stablecoin yield and more. The SEC has submitted guidance on how securities laws apply to crypto to the White House. DEX in the City hosts Jessi Brooks, Katherine Kirkpatrick Bos and TuongVy Le dig into what the proposal could mean for the crypto industry and whether it could be enough to provide developers regulatory clarity as anticipated market structure legislation stalls. Why is the agency submitting guidance to the White House? Plus, KK explains why current regulatory efforts could lead crypto to resort to more “come at me bro” legal tactics and Jessi covers why the industry may regret the U.S. Supreme Court's decision to overturn Chevron deference. Beyond the SEC's recent crypto regulatory move, the crew discusses the arrest of the son of a government contractor alleged to have stolen the U.S.’s bitcoin, what the DOJ's planned retrial of unresolved charges against Roman Storm suggests and why banks are up in arms over Kraken's “skinny” Fed master account. They also discuss why the crypto industry should tighten up security as Iranian groups target U.S. banking services and tech infrastructure. Hosts: ⁠⁠⁠⁠Jessi Brooks⁠⁠⁠⁠, General Counsel at Ribbit Capital ⁠⁠⁠Katherine Kirkpatrick Bos⁠⁠⁠, General Counsel at StarkWare ⁠⁠⁠⁠⁠TuongVy Le⁠, General Counsel at Veda Links: Unchained: ⁠SEC Sends Crypto Securities Framework to the White House Blame Exchanges for Holding Up the Market Structure Bill? - DEX in the City DOJ Pushes for Retrial of Tornado Cash Developer Roman Storm Kraken Wins Direct Access to the Fed’s Payment System Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi all and welcome to Dex in the City where the wallets are cold and the takes are hot. First, we have Jesse, Web3 prosecutor turned Web3 protector at Ribbett Capital. And we have V from the SEC to Web3. And I'm your host, KK, Catherine, fluid in TradFi and Conversant in Deep Tech over at Starkware. Before we get going, as always, remember, we're lawyers, but we're not your lawyers. Nothing you hear on Dex in the City is legal or financial advice and it doesn't create an attorney-client relationship. for the fine print check unchained crypto.com. We're going to get into an especially spicy episode today in one minute

after we hear a word from our sponsors. Quick note before we get into today's episode. Bits and Bits Now has its dedicated feed. We're spinning off from the Unchained Feed and moving to a new podcast and YouTube channel. So if you want to keep up with our weekly live streams and macro meets crypto breakdowns, make sure to subscribe to Bits and Bips directly. We won't publish there until March,

but subscribe today so you can be ready. for launch. Be sure to subscribe to the new feeds at Unchained Crypto.com slash bits and dips. Okay. So as always in crypto, there has been a slew of regulatory activity. And it raises some questions. One of the questions that I've been getting is obviously Jesse B and I all spend some time in Washington trying to get clarity or crypto market structure legislation passed. And one of the questions has been what's going on? There's obviously distractions in Washington. Where are we? it raises the broader question of, okay, what happens if we don't get clarity? What happens if we don't get crypto market structure legislation? And we're already seeing what is going to happen if we

don't get that legislation. And what I'm talking about is the SEC last week submitted commission level interpretive guidance to the White House on how federal securities laws could be applied to crypto. And translating that into basic English is everyone thinks they sent effectively a token taxonomy to the White House. And there's a very important explanatory distinction to this. This guidance differs from staff level guidance, like no action letters, because that applies to a particular officer division and can be more easily revoked. And then there's also formal rulemaking. So this is kind of in the middle. It's not publicly available what they sent, but it will likely become publicly available eventually. It's not binding law, but it's

very influential. And, you know, basically what this says to the market is, if you follow this, you'll receive deference from the SEC. The SEC will come after you. I think that this is exciting that they're making progress on a token taxonomy. And again, I want to reiterate that this is the kind of action that we're going to see in the absence of legislation. So I'm going to pass it actually to be because I know that one of the things that the three of us were talking about is, and you've mentioned this in the past is that absent the misery of the Gensler regime, we may have seen a situation where the SEC just moved to create rules and everyone went along with it. But where are we now if we don't get clarity? And we have no audio on these. So Jesse, jump in. Yeah. I want to feel

positive, start this gloomy day optimistic because taxonomies are useful. And you're right. It's commission level interpretation, it seems like. So it's not. just like a random statement from anybody. It's not even the division level staff guidance, which is useful, but not as, you know, powerful. But I guess I just keep thinking back to when far too many people, in my opinion, in the crypto industry, celebrated the overturning of Chevron, which gave agencies deference. And I have always said that that was a mistake and I was not cheering it along, not because agencies are always right. They're not.

I think we've all seen that. but because deference was the architecture that let regulators build frameworks within their expertise and that courts would actually respect. And this taxonomy is a perfect example in my mind because it's useful. I'm not dismissing it. But we all were cheering because the SEC was defanged. But now we want the SEC to have those fangs back and be able to put out rules and think things through. And I mean, we're all sort of seeing that Congress is incapable of passing clarity and maybe other things as of late. And so we need to rely on these rules. And, you know, as operators, which we all sort of work within that space or help them, you know, they need to be able to build off something.

That's what we have all been screaming into the ether for so long, like help tell us how to follow the law. And if they build on this and then the next SEC, whatever party it is, thinks a different structure is better, then where are we? Yeah, I think. Yeah, I turn my mute off. I think like what you're starting to see like across the different agencies that touch crypto is just everyone is sort of preparing for a world where clarity just never passes. Right. So I think you're going to see a big uptick.

I mean, I think you already are seeing a big uptick in like the SEC. the CFTC Treasury, just like putting out rulemakings and more guidance and maybe more action, no action letters, right? Like Chair Selegg made like two pretty big announcements in the last few weeks that they're going to do rulemaking on both perks and prediction markets, which are like two huge, like, growing areas of crypto. The SEC is doing this taxonomy thing. I, you know, there's this innovation exemption they've been teasing for a while.

like I think that's going to be a big deal. So I think there's going to be an interesting question of, you know, how much authority do they already have under existing laws? Like what can they do anyway in the absence of some new legislation like clarity, right? I think for the SEC, the question is probably a little easier. Like Congress gave them jurisdiction over anything having to do with securities and the capital markets, right? So it doesn't matter if it's like a tokenized security or not. And it doesn't matter if like, you know, it's like chain link, right, could be like the equivalent of like some sort of

price feed in the traditional securities market. Right. Like these things can be on chain, but if they touch the capital markets, the SEC can still pass rules for them. I think with the CFTC, it's a little less clear, right? Like it's not like there's something in the existence. Commodities and Exchange Act that says you get jurisdiction over spot commodities markets or spot crypto markets in this case, right? So I think there there could be more of a challenge. Like if the CFTC starts to exert its jurisdiction over different parts of crypto, like I could see TradFi or like traditional commodities market participants saying you can't you don't have jurisdiction over that. Or you could see on the other side, like crypto market participants refusing to abide by that and saying you don't have authority to regulate us. Like Congress never gave you that authority.

So I think for the CFTC, it might be a little harder. But for the SEC, it's pretty clear. Their jurisdiction is pretty wide. You know, and like tokenized equities are going to be coming at time. So there's a lot that they can do. It's so true. And I always like to refer to that tactic that you just refer to as the come at me, bro. tactic where it's like, I don't think you have jurisdiction. Go ahead and sue me. I'll fight you.

I mean, certain companies usually come at me pro tactic during the Gensler administration and it actually worked out for them. It's, it takes some of women's pod. Like we got through letters. Maybe it's like come at me bra or something like that. I don't know. I mean, a process question for you guys like, you know, we've seen rulemaking. We've seen statements by selling out of the CFTC. why is Atkins here or the SEC and Atkins sending this to the White House? And why is that process happening that way? Is this a political move? Is this like, hey, don't worry about clarity because we got it covered.

How do we think about that in the realm of how this should normally work? V, do you want to jump in or I can take that? Actually, I don't know the answer to that. Yeah, I wonder if it's like they're actually required by law to give. certain notices to like some part of the White House that they're going to engage in some sort of process like a rulemaking process. I'm actually not sure about that. It does seem odd. And I don't know either, but it does seem odd to me because so much about rulemaking and process is about giving the public the opportunity to respond and assess, et cetera. And this is being built

for crypto industry to be able to, you know, either. say whether it works for them or not say whether it works for them or just know what might be coming down the road if clarity doesn't work. So it just seems like a different process than I've seen, although I'm not sure what's appropriate here. So my take on this, and the only reason I know this is I actually did research prior to this pod. So I will say this is a fairly esoteric question, even amongst lawyers with experience with SEC procedure. We'll get someone from the SEC to answer this and opine on this as well, is this is usually a normal procedural step, meaning it goes to the White House, it needs to undergo review by the Office of Information and Regulatory Affairs, which is part of

the White House's Office of Management and Budget. That's an interagency process step, which from my understanding is basically a little bit of a check the box unless it's something offensive or objectionable to the White House. Obviously, anything advancing crypto clarity is not going to be objectionable to this White House. And then once interagency reviews complete, the SEC's commissioners have to vote on the guidance to kind of cement it. And that's the difference between commission level guidance versus staff level guidance. However, what's confusing to me is commission level guidance does not require a commission vote and is genuinely, you know, like viewed as more enforceable. So that delta is a little bit confusing. I think either way, there is something to be said about the

fact that it's going to the White House for that interagency review offers it even more credibility to some degree, even if that credibility isn't legal per se. Because a lot of navigating regulatory strategy and crypto, part of it, a big part of it is law, of course. But part of it is assessing enforcement risk, which is very amorphous at times. So this all goes towards broader enforcement risk and the ability to navigate the gray in absence of a law. Yeah, you know, if you guys recall, like when SAB 121, the accounting guidance was put out, one of the challenges to it, like, later on was that they did not submit it to the OMB for review. And that was seen as like a procedural error, which threatened its like viability, right?

So this could just be them making sure that they're following the right process. So it can't get attacked later. Yep. And, you know, just as a refresher, I did want to be. want to revisit one quick thing is Jesse mentioned Chevron deference. Like in a very, very, very basic sense. That meant judges, not agencies, get the final word on what the law means. So there's certain things that need to happen now to make sure that the agencies have the ability, or as Cher Atkins keeps saying future proof, a lot of this guidance. And, you know, these steps are probably

part of it. The argument for Chevron, which I think is important to raise. here is that agencies are supposed to hire the experts and judges are overwhelmed. So if an agency like the Environmental Protection Administration or the SEC or the CFTC, they decide based on their expertise in financial markets or environment assessment or whatever it is that this rule should be promulgated, then it can be challenged. People have every right to go to court and challenge it. But judges who, I mean, I think I've clerked for a judge. I think maybe you guys have, you know, a lot of times it's clerks that are either out of law school or aren't an expert in this topic because you can't be an expert on everything.

So the concept is you should give deference to the agencies when you're making a ruling from the bench. The argument against Chevron is that, you know, people in agencies aren't elected. Neither are judges most of the time except some local state elections for judicial appointments. So I have always sort of felt like after operating in the courts for so long and no shade to judges, judges have a really hard job, but they can't be experts on everything. Plus, courts are already super freaking busy. And so for them to have to deal with every single rule and think through, does this make sense in financial markets? Oh, I don't even know what crypto is. I mean, if you look at, like we have all been in this ecosystem and space of like knowing every detail about.

financial markets, every detail about crypto, knowing what how he is. How many judges in America know offhand what how he is? And honestly, they can't know that in every other law. So I guess I just keep coming back to like, did we really screw ourselves over here? The good news is that, you know, this happened, what Chevron was overturned last year or so. And there's no real evidence that judges are fully changing how they look at administrative rules and decisions. So maybe, maybe. it's not going to change anything, but the narrative from above is agencies don't deserve the same deference they have always historically. Which crypto loves and hates depending on the power of the agency. I want to move on because I feel like we're getting very nerdy here. And I love it because we love

it, but there's a lot of wood to chop. So one thing I will say is it's always a sign of a good lawyer if they don't always know the answer. Okay. So like I always tell people, if your lawyer says, I don't know I need to look into that and get back to you, like that's actually a good lawyer because the worst lawyer pretends that they know everything, much like the worst judges or the worst agencies. So I want to move into the next topic, but I also wanted to throw out one really other important development that pairs with the SEC development. So the speaking of the CFTC giving guidance, the Fed, the OCC and the FDIC, that's all. lot of acronyms. Those are the banking regulators. We're actually going to talk banking a little

later in the episode. They also came out and advised that tokenized securities will receive the same capital treatment as traditional securities, whether issued on permissioned or permissionless chains. I could not let this go without commenting briefly on it. I think what's really important is that they're answering a different question from the one that the SEC previously addressed when they said a tokenized security is a security. They're answering the question of, okay, we've established that a tokenized securities is security. The next question is how does this affect the banking regulations, meaning how much capital does a bank need to hold against tokenized securities? Huge, huge bullish unlock for crypto. This actually removed a barrier that previously existed for banks because banks

previously were afraid that if they touched tokenized securities, they would be penalized with heavier capital requirements. And the banking regulators just came out and said, nope, you're good. And I will also say it's a huge win for permissionless chains, like, because it legitimizes public chain usage for institutional use. So if I were, you know, Canton or some of the very specific private chains for institutional use, I would have been very unhappy about this announcement, like not a great development, but great for all other chains. So huge. I had to throw that out there. So I will move on to something much more interesting and spicy, and I'm hoping we'll get Jesse's ex-prosecutorial take on this. But a couple of major things happened on the criminal front. A, one of our favorite

people got arrested. Oh, yes. Let's do a grifter update as a pallet cleanser for banking regulations. So a few episodes, I went on a good little rant about the son of the government contractor who has essentially got into fight online in like some sort of competition or who has farmed my God, I can't believe that's a thing. He got to fight was Zach XPT. And Zach XPT, who we've talked about many times on this pod, who roots out bad activity on chain essentially and talks about it and provides some sunlight to blockchain sometimes, he discovered that this person took a lot of money from

the Marshalls and their cryptocurrency. And that person was alleged to be the son of a government contractor. Now, it's no longer allegations because he got got found on a beach in St. Martin. So essentially a person by the name of John Lick-Degita, who Zach, XBT, thought was the bad guy already, is the son of a government contractor who was in charge of pretty much holding all the crypto that's, you know, not the basic Bitcoin Ethereum, but more like the secondary tokens. for the marshals. This is going to be an awkward Thanksgiving.

Sorry I couldn't resist. People have been on the hunt to find this guy. It turns out that the U.S. was working with the French SWAT team, essentially, as we can think of them, to locate this guy sitting on a beach, maybe drinking a little, like, ice drink, who knows? And he was found and arrested in St. Martins, which is a French, you know, Commonwealth. I don't know exactly what it is, but it's under French control. So it actually has a French side and a Dutch side.

Well, thank you. Maybe we should go there and visit and sit on the beach just to do some research. So, I mean, when they arrested him, they found a briefcase full of cash, right? And a bunch of USB drives. And essentially, he's like dead to write based on what they found. It also came out that in the midst of him trying to escape capture, he sent like all these taunts to Zach XPT to be like, you won't be able to arrest me, blah, blah, blah. So Zach XPT is now coming out and essentially saying, now who has the last laugh?

But it's a story that sort of reminds us that crypto, we talk about these decentralized platforms all the time. We talk about this technology for some reason. We're still talking about the how we test and how it applies. But there is so much happening outside of that space to that is linked to traditional, criminal syndicate that's linked to idiots who are the son of rich people stealing money and who it's linked to people not really knowing what country to run to if they want to escape arrest. I can't even unpack this.

Like, I wonder how much what are non-extradition countries is Google. Like, frankly, we should get some data on that. Also, I'll do a search warrant on his phone and find out which he Googled. One of the themes of this pot is occasionally criminals can be stupid. I think I would put that in this bucket. Speaking of not stupid criminals, there's one other piece that we wanted to mention because we would be remiss in not mentioning it,

considering this just hit yesterday. But the DOJ intends to go ahead and retry Roman Storm. As we all know, he's a co-founder of Tornado Cash. He went to trial over the summer, and he was convicted of one out of, I believe, three counts. So he was convicted of, of conspiracy to operate an unlicensed money transmitting business, which is a criminal violation. Like if you are supposed to register as an MSB and you do not, that is a criminal violation,

which is quite unique because most registration violations are often not criminal, especially outside of the United States. They're civil, meaning you can just pay a fine. You're not going to go to jail. This is criminal. Okay. But on the other two counts, money laundering and sanctions, he was not declared not guilty by the jury. the jury deadlocked, which means they can't agree. They needed a unanimous verdict. And on certain

charges, prosecutors have the discretion to try a defendant again on unresolved counts. And this is really interesting because the majority of the time, depending on the offense, prosecutors often choose not to retry a defendant when a jury deadlocks. And in many cases, judges, even frown upon retrial under certain circumstances. So I would say like there was definitely an element of disappointment, surprise in certain pockets of crypto. But I also think this is controversial, but DOJ is making a very specific point in saying that they want to try this. Strategically, I think we can all assume, or this is my assumption, my T, is that DOJ doesn't like to cases it can't win. So I think if they're moving to retry Roman Storm, it's because they think that

they can win this. Like they think that there was only a small amount of jury that was holding out, or there are certain circumstances that have changed public opinion, who knows, but obviously we'll be watching this trial with great interest and providing commentary alone away. Just as someone that has retried cases and talks just to give a little sense about the process. So essentially what happens is the jury comes back. In federal court, it needs to be a unanimous for guilty or acquittal. And as you mentioned, it can be guilty one charge, acquittal, the other charges, or they can say guilty one charge and we just can't decide about the other ones.

And I think we'll talk about this case at nauseam over the next year. So I don't want to get into the details here. But essentially, after a hung jury, whether it's one count hung or all the counts hung, the DOJ is given a certain amount of time to decide if they want to retry it. Now, after an acquittal, both parties, after an acquittal, a conviction or a hung jury, both parties can decide if they want to go talk to the jury. Usually it's not in the DOJ's best interest to do that. And sometimes on the defense interest either, depending on appeals, depending on whether they try and retry stuff stuff, because some of that couldn't be evidence, obviously. And so in this case, what probably happened is that they had a sense that either it was one holdout, which they could have gotten from the notes that were sent.

out, which might say, like, we don't know how to determine how this one factor, et cetera. And then the DOJ, you know, the DOJ can decide, like, we want to try it a little bit differently because we think this issue wasn't pushed hard enough. And, you know, it's going to be interesting now because the MSB charge is out, right? So that is done. That's being appealed for the conviction. So this case is not going to be about money transmission in the same way, which was a lot of the debate, right, at least externally and some in court as well. And so it took some of the air out of the arguments associated with the other charges, money laundering and sanctions evasions, et cetera.

So it'll be interesting to see how the DOJ and the defense change their tactic here. 100%. A lot to watch. A lot to a lot is writing on this, frankly. So we'll definitely be watching this. So we have another really interesting topic. We are going to talk all about crypto banks. And I'll just tee this up by saying 11 companies filed for or received OCC National

Trust Bank Charter's approvals in 83 days, which is crazy town. V is going to tell us more right after the break when we hear from our sponsors. Quick note before we continue with today's episode, Bits and Bips now has its own dedicated home. We're spinning off from Unchained and launching a standalone podcast and YouTube channel focused on the Fed, Macro, AI, and how it all collides with crypto. If you want to keep up with our weekly live streams and macro meets crypto breakdowns, make sure you're following bits and bips directly. We won't start publishing until March, but getting set up now means you'll be ready on day one. You can find the new bits and

Bips channels at Unchained Crypto.com slash bits and bips. You can also find us by searching bits and bips on YouTube, Apple Podcasts, Spotify, or wherever you listen. And we're back. So as I mentioned, lots of chatter about crypto companies trying to become banks, getting banking accounts, getting Fedrails. So, B, tell us more about this. Tell us about the distinction between all of these developments. Yeah. So I think this, you know, this was in the news this week because Cracken got a, like a, they're called, they call it a skinny, like Fed master account. And I'll explain what that is in a second.

Like the context to this, right, is that for like four years, it was basically impossible under the Biden administration to get an OCC charter. If you wanted to be like a crypto bank, there was really just one, my former employer. And they got it literally a day before the head of the OCC stepped down and leadership changed. And sorry to interrupt, I just want to explain, OCC is Office of the Comptroller of Currency. And OCC is the primary bank regulator. Please continue. Yes. Yeah.

The other bank regulators are the Fed and the FDIC. So for four years, there was nothing. And then, of course, with the new administration, right, and to choke point 2.0 and all of that, a slew of companies have applied for this charter to become some form of a crypto bank. And I think there are a lot of reasons that they're doing it. But what has been really interesting is that last, I think it was last year, the Fed announced that it was considering giving out a version of Fed Master account. They call it like the skinny master account. And so we were sort of expecting that one of these banks could potentially get it and maybe sometime soon.

And so that happened last week. So Cracken was the first crypto company or crypto bank to get this Fed master account. It's a skinny version of it. And I have to start with a small disclosure, Veda, the company that I'm GEC for is Cracken's vault provider for their defy-e-earn product. But I am not being biased when I say that this is actually like, it's genuinely historic. The Federal Reserve Bank of Kansas City approved this master account for Cracken financials. which is Cracken's Wyoming Chartered Bank.

First crypto company to get one. And shout out to Ben Gray, their amazing chief legal officer. I mean, I know from personal experience how much work it is to get something like this. Like at my last job, we obtained both our Bit License in New York and major payment institution license in Singapore while I was there. And it's something that like the company had been working on for years before I even joined. So kudos to the team at Krakken for being first to get this. So I think there were a lot of questions about, you know, what was Fed master?

Why did it take so long? Apparently it took them like five and a half years to get it. What are the catches? And especially interesting for me, like what does it mean for Defi? So a Fed Reserve Master account is basically like you can think of it as the plumbing of the U.S. financial system. So if you have one, you can hold reserves directly at the Fed and you can settle dollar transactions on Fedwire, which is the Fed's real-time growth. settlement network and it moves like trillions of dollars every day. So most people have probably never thought about this because, you know, if you're a bank, it just kind of comes with the

charter. You get a master account and you're in the system. But if you're not a bank, right, if you're a crypto exchange or a fintech or a payments company or if you're one of the few federally regulated crypto banks out there, direct access has never been automatic, right? You have to go through a correspondent bank where you have to wire money to that bank, which then settles it on FedWire on your behalf. So there's just like a lot more friction, there's delays, there's fees, there's counterparty risk, that sort of thing.

So having a master account and getting that direct access where you don't need to use a middleman, you're settling in central bank money, not in private bank money. And that's a fundamentally different and much, much better thing. So I think there's one important nuance that I mentioned earlier,

which is that this is not a full Fed master account. It's a skinny master account. account, quote unquote, and this was something that the Fed governor Christopher Waller floated last year. So it's basically like a limited version of the full Fedmaster account. And it's designed for companies that are not like full on banks, like FinTechs and other novel institutions. And the limitations actually are pretty significant, right? So Cracken will not be able to access the Fed's discount window, meaning they don't get emergency loans. They can't earn interest on reserves. and it's structured, it's actually structured as a one-year pilot program, not a permanent approval.

So the specific risk restrictions that the Kansas City Fed imposed are actually being kept confidential, which is a little weird and I think kind of controversial, honestly. But again, getting direct access is still a big deal. I did want to touch on why it took so long. So Cracken filed their application. I want to interrupt before you get there because I want to just underscore what you said about how historic this is. I want to say that I have no ties to Cracken, although I also really like Ben. He's brilliant and a good dude. But this is a huge deal because it gives them a major bridge

between tradfying crypto. It gives them regulatory credibility from the Fed, which has so far been unprecedented in this context for crypto. And as you mentioned, faster and cheaper access to Fiat. Huge deal for Cracken. Huge deal for crypto. This is another. massive institutional unlock. And these things keep happening. Boom, boom, boom, boom, boom in the middle of a bear market, which I feel like we need to focus on that. Please, go on.

Why did this take so long? Totally. I guess, I'll just add to that. Sorry, all I was going to add to that is like, it's really interesting to look at other countries because banks are pissed. And I think we should talk about why the banks are pissed in a moment. But other countries have been, you know, allowing access to similar sort of master account structures to not.

on banks for a while. I think the UK has like a few hundred EMI's like electronic money institutions that have similar access. I don't know the specifics of the comparison of it to the Skinny Master. But, you know, the banks, obviously the banking system here is different than it is in the UK, but there are other countries that are also doing this. And also like a lot of the banks' arguments, which I think we really should go through a little bit, are falling a little bit flat because of that, although they do have something when it comes to the process. So V, tell us why just be taking so long and then we'll get, we'll get to why the banks are furious about this. Yeah, yeah. Jesse, you should touch on that. Yeah, yeah. So Cracken originally

filed their application in October 2020. So it took five and a half years, like I said. And I think like you can't really talk about this approval without also mentioning what happened with Custodia Bank, right? So Custodia is another Wyoming chartered, what's called a special purpose depository institution. So they have the same state charter model as Cracken Financial. And they actually filed their application the exact same month with the same Kansas City Fed. But what happened with Custodia was that in early 2023, under the Biden administration, the Kansas City Fed denied their application. And And custodia didn't just like, you know, go quietly in the night. They sued and they sued pretty loudly and they eventually lost. So, you know, I don't know the reasons why Cracken has gotten this and custodia hasn't. And maybe custodia and others will soon, hopefully, like, who knows. But I can't help but wonder whether it was because custodia litigated against the city fed when it was denied. Right. So yes, we're under a different administration and

different leadership now, but like maybe the memories of staff, you know, may be long. And I think the other, the other factor could be that, you know, Cracken is supposedly going to become a public company sometime soon, which means just a lot more public scrutiny. They're also just, you know, they're a major company, a major crypto company, whereas custodian still kind of small and I think regarded as a little bit more of a scrappier player. So maybe the Fed thought it was just less risky to go. like, you know, do this experiment with a company like Cracken versus some of the others. But, you know, I do hope, like I said, I hope that we will see more of these skinny Fed master accounts granted to

other companies soon. Yeah, Cracken filed for a confidential IPO in the fall. So I think that's a big part of it. The other thing I wanted to note is that we're not just talking about the skinny master accounts. We're seeing a slew of other filings. Like we're, I think it was just last week, zero hash applied for a national trust charter, Revolut filed for a U.S. bank charter. These are all different things. I want to be clear. This is not all the same thing. But what we're seeing is just a massive amount of activity where crypto companies, crypto-native companies, are seeking some degree of approval and authorization from the traditional trad banking regulators. And unlike the past five years, we're actually seeing the

regulators grant this, which brings us to the, The T here, which the banks are furious. Obviously, the banks are furious at stable coins, you know, back off from my yield bra. Okay. And the banks are furious that crypto-native companies are effectively encroaching in many ways, like with faster, more efficient, cheaper mechanisms to do their jobs for them. So what is happening is, and you know, I also want to add in December, I was joking like, you get a, you get a charter, you get a charter, you get a charter. In December, the OCC granted five companies conditional approvals simultaneously, like conditional bank charter approvals.

And that was what kind of opened a lot of the floodgates. Now we're seeing the Bank Policy Institute, which is an industry group representing 40 major U.S. banks, including all the big guys. They have said they are seriously considering suing the OCC, basically saying, like, this is not cool. Like your approach to crypto-related charters is, you know, out of control. Likely, the arguments would say that the OCC has overstepped its bounds or aren't following appropriate, you know, procedure in granting these charters. But that will be really interesting to see what happens. Like, this is a little bit of a mess. Yeah. Let's examine the bank's arguments

with like a bit of an unbiased eye here because I think it's worth at least trying to steal man them a little bit and see if they challenge. Because it's very easy to say, oh, they just don't want competition or banks are the worst because banks are sort of the works. So I get it. But, you know, their first argument essentially about the competition, about crack and not being ready, I think is defied by the five-year examination, by all the work that a lot of crypto companies have done to show that they are worthy.

And a lot of that probably stems from the fact that the banking system has been the de facto regulator of crypto access to the economy. because if you needed a bank to move dollars, right? And maybe that's going to change now and it will at least begin to change with Cracken. So let's just push that one to the side because it does seem to be based on competition. But there are, there is another argument that I think is worth discussing. And that is essentially related to process. So the banks are arguing that the comment period associated with the Skinny Master account closed just weeks before this approval for Cracken. And that means, that people didn't have a full time to assess potentially all the comments. They didn't take the industry thoughts into account when they did this. And obviously, Cracken has been trying to get this for many years. So did anything about this comment process actually make a difference? So they're going to have maybe a nugget of challenge there. There's also like, you know, when you get this kind of access, it's essentially a compliance character reference for Cracken coming from the Fed, right?

at saying they have good enough protections in here. And then when the Fed granted this, they said, we're going to put in specific restrictions on cracking because it's different and because it's trying this experimental new step. However, the Fed did not reveal what those restrictions were. And so anybody is going to have a very difficult time trying to understand why the Fed thought that this was safe enough. I'm not saying it is or it isn't. It's just banks and other players really should be fully aware of why this decision was made and how it was made. Yeah. And you make a great point in that, look, I think it's very easy for crypto to say, like,

screw you banks, like it's a free market. But some of the objections that the banks have, and this goes to the charters, but also the yield, is that crypto combinations should not be allowed to take shortcuts when they're engaging in regulated centralized activities. And that does resonate with me because what I don't want to see, and obviously this is a dramatically different situation. But I don't want to see what we saw in 21, 22, where you had CFI, centralized financial services using crypto as an excuse to avoid regulation. Because if you're a centralized entity, engaging in traditional financial services activities,

like there are reasons for this regulation. There are many reasons for certain oversights and capital requirements. A lot of the history of both U.S. and global, regulation is actually reactive as opposed to proactive where there was a crash, there was an incident, and certain laws were put into place to avoid that ever happening again. And those laws, maybe paternalistic, may be appropriate, were put into place to avoid retail bearing the brunt of the crash or the issues that resulted as a result of the volatility. And again, some people in crypto are like back off, free market, paternalistic. But the other side of the coin is, look, retail needs to be protected to a certain degree.

And this is just how our system works. And if someone's taking a shortcut that doesn't make sense, if they're engaged in the same or materially similar activities, I can see why that's a really legitimate complaint. I don't know. So poor banks, right? Look, I think we could talk about banks all that. And the last thing I'll say on the banks is I have always said, like, I'm old enough to remember Occupy Wall Street. Like, does anyone else remember Occupy Wall Street? It wasn't that long ago.

Oh, I was in San Francisco, which had like the biggest sit-in for like weeks and weeks on market. I am actually, okay, so it was actually a really long time ago, guys. It was 2011. That is a long time ago. So for all of our 25-year-old listeners, like they probably, I mean, they were in high school. Okay. So the thing that I always say is there was a time when everybody hated banks so much, hated Wall Street so much. I really wonder what crypto would have been like.

Like if we could have passed some amazing like legislation in 2011 as an alternative. Oh, my God. Was Satoshi part of that movement had to have been? Was he or she camping out on the street doing Occupy Wall Street? I mean, you might have just connected some dots here for our Twitter investigators. Satoshi researchers. Have you pulled this thread? Okay.

No, I mean, I don't think it was a coincidence, right? That, like, Bitcoin came out the same years of 2008 financial crisis. Yes. Like, around the same time. Well, and there's a lot of laws, like, in particular, I'm referring to, you know, Section 530. the Communication Decency Act and others that protect the internet because everybody's supported and loved the internet. Like all legislators are like, this is a good thing.

We should make it good for them. Crypto has never had that benefit. Like crypto has never had an environment where legislators are like, let's make legislation better for crypto. We're seeing that now from the Trump administration, but we're not seeing that across the board. Imagine if we had that environment. Like, oh, God. Occupy master accounts.

That's going to be the new. Master accounts for everyone. Okay, so I want to move on. We do not have an AI corner this week, although there's so much. I tried to make it happen, but we're in a different direction. There's a lot about AI, like AI agents are mining, are going rogue and mining crypto. Oh my God. Did you see the meta glasses story?

No. Oh, everyone needs to go read this. So essentially, meta has these glasses, right, that are AI and for you to do a bunch of different things. I don't know if you guys have ever tried them or used them. Not for me, but other people seem to like them. And if you go to SF, it's going to be like the time I live there with everyone wearing Google glasses.

But essentially, it came out that there were people in certain African countries revealing what they saw on other people's metaglasses. And they had been hired by meta to review supposedly for security and to help train. But essentially they were reporting that they were seeing people go to the bathroom. They were seeing people have sex and do a bunch of other things that we shouldn't talk about on this pod. Everyone must go read the story because it is mind-blowing and also just should remind everybody read the terms and service. Terms of everything before you agree to things, before you show them your entire life, before you wear glasses you think are protected and get naked in front of them. just be smarter.

Trust but verify and never trust. No, don't trust. Never trust. Don't trust AI, just verify. Trust the chain. Don't trust the robots. Okay. Yeah, don't trust big tech.

Those and aside, but I needed everybody to know about this story. Yeah. So our last topic, I want to turn it back to Jesse to tell us about some crazy stuff coming out of the global conflict. we've been experiencing lately. Yeah, less of a story to joke about and more one that should put everyone on their front foot is, as we know, the Iran war is still happening. We're in week two. There's devastating human toll.

I know a lot of people here and on this pod have been personally affected by it as well. So many people are covering that. I want to talk about cyber, though, because cyber war isn't coming. It's in our building already. this week or maybe last week it was determined that an Iranian intelligence group called Seedworm, I don't know who comes up with these, was just found inside of a U.S. Bank. It had been there waiting for the airstrikes to happen, building a back door so that they could get in. Seedworm was also found inside a U.S. airport, just before you guys fly anywhere, which we all do

a lot, and as well as a defense contractor. And Seedworm is just one of nests, many of these players. Reuters came out that the entire U.S. financial services industry is on heightened alert. Jamie Diamond, KK.'s favorite person, said pretty much out loud this week that cyber attacks are rising and is the highest risk that banks face right now. And in the midst of all this, three drones hit AWS data centers in the Gulf. And that was the first time in history, as far as I know that a military strike has taken down cloud infrastructure tied to America. And with this, banks went offline, supposedly some exchanges went online. I don't know if you guys noticed, but I couldn't access Anthropic for a long time, which was devastating for me in the morning.

And, you know, we all talk about the data centers, you know, we all talk about the cloud and the ether, but it's all in a place that can be bombed, and we just need to think about that as we build out infrastructure. And the thing that's really pissing me off right now is that SISA, which is the agency whose entire job is to protect American financial infrastructure, to throw another acronym out there, but it is made and tailored to do just this and stop these kinds of attacks, has lost about a third of its employees since January of this year. And its temporary director, you're going to like this one, is out because he puts sensitive documents into a public version of chat GPT. So that is who is protecting us during an active cyber concept, or not

protecting us while Iran is trying to attack us and our systems. And, Crypto is not safe. I know I haven't talked about crypto intrusions yet, but it's not safe because Iran has learned for North Korea and is in fact getting trained supposedly by North Korea on how to run the exact same playbook. So fake job offers, fishing emails, social engineering, their way inside of companies. And the night the bombs dropped, Iran's largest crypto exchange crash, a project development team from a defy company, they got drafted into the Iranian military. And now the, you know, probably, doesn't exist anymore. So the risk has been there for years and the war is just turning up the pressure and the velocity. And everyone should know, and I saw this in my prior life, doing national security cases. Like Iran doesn't just hack and then run away. They get it and they sit tight and they wait and they have been waiting. And some of the data they're using right now was taken like a year, two years ago and they're just waiting. And something that should scare us all is that Handala, which is one of Iran's most active, hacktivist group.

Like, everyone knows that who studies the region, they've been very quiet since January. And it's sort of like when your dog's quiet in the other room and, you know, it maybe starts making a throw-up noise or it starts barking. Like when someone is quiet, they are preparing. And that's particularly how Iran operates. So banks are running war drills. Reuters is covering what banks are doing. Jamie Diamond is thinking about it.

Crypto needs to, too, because you shouldn't be panicking. but you need to prepare. And if that's like the one thing I can give you from today, because we built a digital economy. Now we just have to remember to defend it like one. We cannot be complacent because regulation seems okay or whatever. We are not safe from these external forces. And we just need to be really, really careful and take seriously the money that we touch for our customers.

A hundred percent. And also, guys, read your AI policy. Like, be smart about this. your data is not necessarily secret depending on what version you're using. Some of these enterprise versions also at risk. If you don't have an AI policy, I would suggest you raise this with your legal. Be smart about emerging tech, right? We're in crypto.

We need to know this. I will also shout out that these Iranian groups have crazy, crazy names, Jesse. Like there's also charming kitten, like mint sandstorm, karma. Like, I mean, I could go on and on. So the names are quite like, sometimes you have to laugh if you don't want to cry in these situations. And, oh, static kitten. That's another word for seedworm. I mean, so points for creativity, I guess.

On that dark note, I want to wrap up as usual with our crypto good news. And this week's good news is definitely non-traditional good news in that it's not good news. I just want to note that Sunday, you guys, was International Women's Day. Yes. Woo! And ironically, it was also the shortest day. I only give us 23 hours, but it's when we were all most tired. Okay.

Like, something just so perfect. So I want to take this week's good news to shout out my amazing co-hosts. I want to reiterate something I said in the first couple episodes. One of the main drivers for this pod was amplifying female voices and an absence of crypto podcasts featuring women. There are many of us here. This industry is not just crypto bros. Everyone in this industry knows that.

I like days like International Women's Day because I think it just hopefully allows everyone to take a breath and think about how all kinds of diversity and different in every possible facet of our lives, not just gender, enhance this ecosystem and bring different perspectives to the table and make us all better for it. So obviously, it's just something to be noted and celebrated. Cheers to that. I wish we had fake cocktails today, guys, but I'm going to cheers with my usual fridge cigarette. So waiting for Diet Coke to sponsor this podcast, but probably at everything you just said. Okay, so that's it for today this week of Dex in the City, and we will see you next week.