Unchained - Did FTX Ruin Crypto’s Image on Capitol Hill? Two DC Insiders Discuss - Ep. 450

Episode Date: January 31, 2023

Sheila Warren, CEO of the Crypto Council for Innovation, and Miller Whitehouse-Levine, Policy Director of the DeFi Education Fund, offer insider takes on how lawmakers and regulators are viewing crypto after FTX’s catastrophic failure. Both expect heightened activity in the U.S. from what they’re calling the “Crypto Congress.” Will this be the year for stablecoin regulation? Is DeFi still in the crosshairs? What about Ripple’s fight with the SEC? The two crypto policy experts look to the U.S. and beyond for what regulatory battles lie ahead in 2023. Show highlights: why the current environment in Washington makes it difficult to pass new legislation whether the opinion of members of Congress on crypto has changed in the aftermath of FTX’s alleged fraud how Elizabeth Warren and others are using the FTX collapse to prove their anti-crypto stance whether it’s possible to prevent a fallout like FTX from ever happening again why Miller believes that this year Congress will be “absolutely obsessed” with crypto what stablecoin legislation would look like, and why stablecoins are more likely to be regulated sooner why Sheila thinks Ripple could win its case against the SEC why they believe the SEC’s failure to approve a spot Bitcoin ETF is a logical inconsistency  why they think it’s not possible to apply TradFi rules to DeFi technology how more policymaker education needs to be done how OFAC sanctioning Tornado Cash sparked many conversations among researchers and policymakers the role of the government in preserving national security how MiCA took an appropriately slow approach to imposing DeFi regulations the impact of China and India adopting digital currencies  why Miller thinks China’s digital yuan is “the apotheosis of a totalitarian technology”  Thank you to our sponsors! Crypto.com FTSE Links Previous coverage of Unchained on crypto legislation: Why Bitcoin Now: Michael Casey and Niall Ferguson on How Bitcoin Fits in the History of Money Kristin Smith on Why Crypto Legislation Could Be Passed by Year's End Why Senator Pat Toomey Thinks SEC Chair Gary Gensler Is Wrong About Crypto Guests: Sheila: Twitter Miller: LinkedIn FTX CoinDesk:  After FTX: How Congress Is Gearing Up to Regulate Crypto Congress' FTX Problem: 1 in 3 Members Got Cash From Crypto Exchange's Bosses After FTX: How Congress Is Gearing Up to Regulate Crypto CNBC: House Republicans move to regulate crypto industry with a new subcommittee MiCA CoinDesk: Analyzing What's Next for Europe's Markets in Crypto Assets Law EU’s MiCA Crypto Law Would Have Stopped FTX's Malpractice, Officials Say Others Project Hamilton - Building a Hypothetical Central Bank Digital Currency U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash Tornado Cash is no “golem.” It’s a tool for privacy and free speech. - Coin Center Learn more about your ad choices. Visit megaphone.fm/adchoices

We at the Crypto Council are calling this in the Crypto Congress, because I think there's going to be a lot of activity. Bills being introduced, discussed, new coalitions forming, tons of chances for all of us to educate, which is great. But the ability, again, to get anything across the line, not just crypto-related legislation, any legislation, we're just in a very different world. Hi, everyone. Welcome to Unchained. You're no-hype resource for all things crypto. I'm your host. Laura Shin, author of The Cryptopians. I started having crypto seven years ago, and as a senior editor, Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the January 31st, 2023 episode of Unchained. For exclusive interviews, transcripts of full episodes, and access to our subscriber-only chat group, sign up for Unchained Premium today at Unchained Crypto.substack.com.

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Miller. Thank you. Thanks, Laura. The last time I did a show on regulation was back in early October when things looked quite different. Funnily enough, the headline on that story was Kristen Smith on why crypto legislation could be passed by year's end. And in the episode, she actually credited Sam Bankwin-Fried with being the force behind a bill that at that point, a few people had actually heard of, and it was the Digital Commodity Consumer Protection Act, or DCCPA. It's extremely notorious now in the crypto community, which is why I actually find all this kind of amusing. However, obviously what happened is that, first of all, even before FTX collapsed, Sam Binkin-Fried himself, came under fire from the crypto community for how that

legislation proposed to treat DFI. And then, obviously, post-FETX, X collapse, the future for crypto legislation probably looks quite different. So I'm curious to hear from both of you. And when we start with Sheila, what would you say are the top line takeaways about the current state of crypto legislation in the wake of FTCS? Well, thanks, Laura, for the question. I think it's not just about FTS. It's also about the fact that we have a new Congress. So now we actually have split chambers. We have a Republican House, which may or may not be able to come together in coalition to get things across the line. That's still being sorted, which is a very real-time active thing that's happening, and a Senate led by the Democrats. And so we're in a world,

I think, this is something at the Crypto Council we had been warning about and thinking was a real possibility. But I do think a lot of folks assumed we were going to have an entirely Republican-led Congress, which would have had very different potential outcomes and other things. So it's not just about what happened with FTCS. It's also recognizing that we have a whole bunch of new actors. And it's a very different situation in Washington now than we had prior to this election and prior to the swearing-in of these new members, too. Now, to answer your direct question, what that means for crypto legislation, is it what it means for all legislation? We've already seen it's going to be really tough to get things across the line. We're looking actively right now at a debt ceiling situation,

brinkmanship, this is always kind of a dramatic moment in Washington, but not this kind of brinksmanship. And we actually have a handful of folks in the House that seem pretty committed, you know, to whatever deal they struck with Kevin McCarthy, they seem pretty committed to holding up legislation that does not completely align with their interests, perhaps which represent interests of their constituents, maybe not. So everything is in a different place than it ever was. And that means that like all legislation, crypto-focused legislation is also going to have to run a gauntlet that we were not looking at in the end of last year. Wow.

Wow. And some of what you mentioned with the House or slightly alluded to, I just wanted to kind of call out. You're probably talking about how it was, I forget, like 15 votes or something before Kevin McCarthy was able to be sworn in a speaker. So, yeah, that's, I think, you know, historically, obviously very aberrant. So clearly there's a lot of hurdles to any kind of legislation being passed. Miller, what is your view on how, you know, things look at this point?

Yeah, I think Sheila generally is 100% right. I think that, you know, some foundational concepts or the landscape changed in some fundamental ways from FDX and from a new Congress. I think that generally policymakers are taking a refresh look at the crypto industry and ecosystem broadly, rethinking what's they thought they knew, given the shock of the FTX collapse to everyone, including lawmakers. And as far as the dynamics of Congress is concerned, completely agree with Sheila. I think that post-FTCS, some folks, particularly in the House, look at it, the collapse as a failure of people and not a failure of the technology or the underlying concepts itself. And there are other folks, I think particularly in the Senate, that think the exact opposite

of that, or that the technology is, for some reason, a contributing factor to the collapse and other collapses last year. So I think it's going to be tricky for those two groups to come to consensus on any particular issue, which will make the prospect of legislative action remote. So just building on what Miller just said, I think that we should draw a distinction between the activity we expect to see in Congress. We at the Crypto Council are calling this in the Crypto Congress, because I think there's going to be a lot of activity. Bills being introduced, discussed, new coalitions forming, tons of chances for all of us to educate, which is great, but the ability, again, to get anything across the line, not just crypto-related legislation,

any legislation, we're just in a very different world. So the conversations are going to continue, and I do think in the wake of FTX, there were a bunch of folks elected who were kind of like, well, you know, that's not really my issue. I don't have to pay a lot of attention to it. I think that is now an unusual position. I think most people feel like they have to have some baseline knowledge about what's going on here, some baseline opinion about it. And again, that's an opportunity for us to do a lot of education to folks who are more open-minded. And the last thing I'll say is a reminder is that crypto remains attractive to people or interesting to people. They're curious about it all across the political spectrum. This is one of the very few issues that does have bipartisan support and bicameral support from various people. people, and it certainly has generated a tremendous amount of interest. So I think Miller would agree, our work is cut out for us here. There is a lot to do. It's going to be very busy, but I think the expectations around, you know, what's going to get across the line and the ease of doing that need to be calibrated in accordance with the new environment that we're dealing with.

Okay. So this is actually super interesting that you're saying all that because I actually was very curious, obviously, Sam Pinkman-Fried was probably the number one most active crypto entrepreneur in Washington. And he and other FTCS executives were huge donors to members of Congress. It ended up being that Coindex did this investigation and found that 196 of them had taken money from him or other executives at FTX. And that that amounts to one in three members of Congress. And I was wondering if you felt that those members who took donations from, you know, FTCS-related people, if that kind of has made them feel like they got burned and so has kind of turned them against crypto to the point where they want to be tougher on crypto or they're trying to

distance themselves from the industry that they're now sort of even maybe anti-crypto, or I'm sure you've heard the theories that because of the political favor, they were trying to hurry that maybe Sam and other FTX executives will get off with, you know, no jail, no prison time or light sentences or whatever due to that. I, you know, I don't know what you make of those things, but or is it something else entirely? I'm just kind of curious, because to have the one person that they were sort of hobnobbing with be the one to allegedly perpetrate this fraud, I don't know. I just feel like that in particular might spark certain reactions in one direction or another. Yeah, I think that, um,

Well, I think to everybody felt burned, you know, no matter whether you're just an average crypto user or a member of Congress, everybody felt burned because it was progulent. I think the conspiracy theories about him getting off have just been proven incorrect, given the fact that it's seemingly every federal law enforcement agency has thrown the book at him, so to speak, including for potential or alleged campaign finance violations to your point there. So, you know, I think that members of Congress who received donations from him, many of whom are already or have already given the money to other causes and which the debtors in the FDX case are seeking to get back from certain charities too. I'll feel burned just like everybody else.

I think how people react to that with respect to crypto regulation depends, I think, on the person. similar to the dynamic I described previously. I think some folks view what happened with FDX as being an FDX problem. Others see it as being a crypto problem. And to Sheila's point, I think it has generally made folks have to pick aside, so to speak. It's not binary, of course, but to have some position on crypto and two Congresses ago, there was probably two or three members of Congress who had positions on crypto. And you're not seeing that fall alongst partisan lines?

No, not really. And I think to add to what Miller said, I think there's some folks who really see this as a Sam problem, right? Not even an XTA. It's like Sam and allegedly the small group of folks. And so the thing, Laura, I think, is that this was so egregious. Like what happened here was just so wild, right? I mean, just absolutely outrageously egregious. And I think people understand that.

They understand that it wasn't just, to Miller's point, like, everybody feels burned by this, right? There are investors who feel burned, users who feel burned, employees who feel burned, regulators who feel burned in the Bahamas. I can't imagine how people there feel. You know, there's a tremendous shock that happened as a result of all of this. And so I think there are a lot of folks that understand that, you know, this was, again, eight criminal counts were brought here. This is not some mild, you know, here one day, gone the next kind of thing.

This is like a massive, massive perpetuated fraud on people all over the world. So I think folks really do understand that. And I think they get that this was a case of one of the oldest crimes in the book. You know, it was the new incarnation of that crime, of that kind of financial crime, that was management, that fraud. Again, we'll see how all this plays out with the criminal justice hearings. But I think people do understand. This is not an indictment.

Now, those, I do think people who had already decided in their brains that crypto was the enemy for whatever reason, they are certainly using this to, you know, lean into that point, for sure. Absolutely. They're using it as a political talking point. Like, for instance, Senator Elizabeth Warren, as an example. I don't know that many new people that came to this are looking at this situation and saying, well, this one guy and a small group of people did this horrible, committed these horrible crimes. Therefore, an entire industry must therefore be suspect. Like that's, it's a pretty big leap. And I think that again, it kind of hammer the point home, it's because the situation here is so extreme. If this were a more ordinary kind of crime, I think people would be like, oh, is everyone doing that? Because it was so outlandish, so outrageous, so extreme. I think people are like, wow, that takes a particular kind of individual to even conceive of, let alone pull off, right? It's not an ordinary situation by any stretch of the imagination. Yeah, I would agree with that. So obviously, I'm sure there's a lot of different ideas being bandied about. But, you know, within the

crypto industry itself, right after the collapse of FTX, we saw, you know, this movement to show proof of reserves. And, you know, there was just a lot of discussion around how to prevent that kind of thing. Are you hearing about any lawmakers or regulators discuss regulations or laws that could be implemented to prevent, you know, another FTX? Again, it varies pretty widely. And it varies jurisdiction to jurisdiction and how folks are approaching this. It varies almost person to person in many ways. And part of this is, I think, the domain that people feel they have either some kind of influence over or that they're deeply interested in, right? So some folks are saying, and this is a kind of point I've made before, including in the press, like, the system did work here, right?

I mean, the reality is this person was arrested. There are these eight criminal accounts brought. A justice process is running. And this all happened pretty fast. So I've been compared to of Sam Bank Winfrey to Bernie Madoff or Ken Lay or whatever. And the reality of those situations is those went on for like decades. This was a pretty fast, you know, horrible act to getting caught, to getting arrested situation. All things are considered. So you could argue that the accountability mechanisms already existed in our current legal system, at least here in the United States. Now, what's interesting, of course, and what I think everybody has interest in is preventing this from ever happening again. And there, I think it's not.

just about a legal and regulatory response. It's also about how do we think about diligence? How do we think about the fact that we've created a cult of personality around tech geniuses, right, that didn't exist 15 years ago? Like, all these things play into what happened here and the ability of one individual to earn the trust of people from such a broad variety of spaces, not just Washington, but all kinds of other places, too, right? So I think there's a reckoning that's happening with a lot of that that goes beyond just who should take money when and what and this kind of thing. And I don't know that all of that could ever be addressed by any specific legislation or regulation that might come down. But I do think the industry has expressed our own interest in

making sure something like this can never, ever, ever happen again, and that you're disincentivizing this behavior, that you're making sure that if people do want to pull it off, it's pretty easy to catch them, right, and that there's accountability built in. Now, I think to the points Miller made earlier, the great thing about crypto and blockchain is that the tech itself, if you lean in to certain technical design choices and other kinds of things, you can put some of that into place and actually make that incentive structure, make that governance model, make that accountability part of how the system actually works itself. And this is a point I know Miller and I and many others are really talking about and trying to highlight is we don't have to just rely on an

external system of accountability or regulation, although that is inevitable and also important, we also need to be leaning into what the technology itself enables. And that's something, I think, to go kind of connect this to the topic today, folks in Washington or even in Europe or other places have a highly varied degree of understanding about how that works in the reality of it. Yeah, I don't think we've even kind of gotten to that part of the conversation in any systemic way yet. I think that Congress right now is in kind of a shift. self-shocked fact-gathering what happened mode. And I expect there to be additional hearings on what happened looking back. But I think, you know, this conversation about what comes next,

how can we prevent this kind of thing? I think is very context-dependent. You know, I think where the business model is centralized and custodial, many of the regulations in traditional finance can mitigate some of those risks in a substantially similar way. in the crypto markets. And then to Sheila's point, I'll talk my book, there are other ways to go about eliminating the need to respond to those risks altogether,

non-custodial exchange, be they with a centralized limit order book or with DFI protocols. So I think that, you know, that's the exciting conversation to come, depending on how you view it, but Congress, in my opinion right now, is still in the what happened mode.

Yeah, I've, I've been calling it the festivist season, right? Like, for those who are in Seinfeld, like, there's got to be some pulpit pounding and some of that's going to happen for, you know, obviously, right? That happens every time you have something like this that goes down. We're certainly not the first industry that's had senators yelling at people. You know, this is just a part of the process. But then we, it is going to transition and shift into something more productive, I think, once some of that has been completed. And I agree with Miller. We're expecting to hear more hearings about just kind of the forensics around like, how did this happen? How could. could this have happened and what could have prevented it? All right. So let's move on from the FTX stuff and just talk. I mean, there's so many different topics to discuss. But why don't we just start with your overall goals for crypto policy this year for each of your organizations? Sure.

I'm happy to start. So I think, you know, number one, to Sheila's point, the odds of Congress getting something done might be slim. But I think it's going to be absolutely crypto-obsessed Congress. I think there'll be more bills introduced than. probably every other bill to date that has been introduced in aggregate. So I think it's going to be incredibly busy. And thinking about where this space is going over the next 10, 20 years, that work is absolutely critical in Congress to end up eventually with good policy.

So that is definitely top of the list. I think litigation is probably going to be more important over the next two years for better and for worse than it has been previously, given that the legislature might be clamped up a bit. And then rulemaking, I think, is going to be a top priority for us. I think that the SEC has some open rulemakings that could be particularly problematic for DFI protocols. The bipartisan infrastructure framework, if you can think all the way back to August 2021, the rulemaking for implementing that new definition of a broker will eventually need to happen.

and that might be this year. So I think that just keep it on doing the everyday work with Congress is the top priority. And then litigation and regulatory work is going to be just as important. And not just domestically, you know, let's speak to what's happening all around the world. And when you talk about litigation, any particular litigation that you want to call out?

Well, right now we're involved in the Uki Dow case. It's the first time a federal agency sued a Dow, as such, alleging that it's an unincorporated association. So that's one we're involved in right now. I think, you know, to the extent these rulemakings are finalized knock on wood in destructive ways, that is a depth area for potential litigation too. But we'll see. You know, if you had asked me on October 7th last year, I would not have guessed that tornado gash would be designated an entity the next day. So who knows what will come down the bike. Yeah, this is probably where I disclose I'm on the steering committee of the Defy Education Fund.

So we work very closely with Miller on thinking through some of the priorities at the Divi Education Fund. And for CCI, you know, we're a global alliance. So we are looking across the world, really. We're active right now, specifically in Brussels, in Europe, in the UK, which of course post-Brexit is a lot going on in the UK that I don't know that everyone's aware of. In the U.S. I also think we're getting, we're stepping up our engagement at the state level, specifically in California. where we are seeing a number of things happening that it could be good or could be bad, depending on how industry engages, right?

Like these things always have a window where they can go one way or the other and be positive or negative for users of the industry, users of products and services in the industry. I think for us, I'll add, I think it's a good reminder, as Miller calls out, there are three branches of government. You know, the legislature is the one that gets a lot of attention, particularly in the wake of the DCPA. And with Sam and all that, people are, I think a lot of crypto is like, eyes are trained specifically on the hill, but there are two other branches of government that

are also really important. And we are seeing the judicial branch. There's a lot of changes that happened last year there as well that didn't get the same attention. But you've got something called, you know, the Chevron doctrine around how are federal agencies, executive agencies, how can they make rules? And are those rules sticky or persistent or are those rules going to be challenged in court? And we're seeing that come up, not just in our space, but in a lot of other spaces that have implications for how we think about bringing litigation. And here I'm kind of speaking as a lawyer, right, in this space. And so I do think you're going to see a lot more activity in that space. And part of the strategy now is, is it more efficient? Is it more permanent, frankly, to take a

litigation route and go through the judicial branch of government than it is to maybe seek a legislative solution? And those are things that are now in play because of where we are with a legislative branch specifically on the hill. The states should not be understated. State activity is going to get, I think more and more prominent and present, particularly as the perception that at the federal level, there's going to be, again, this difficulty in getting really comprehensive things across the line. So what's that going to mean? And then, of course, Europe. Europe is taking a vote soon, the very final kind of vote on MECA, and then that's going to move to implementation. Implementation is really where the rubber meets the road. How is each country going to look at these of these rules?

How are they going to implement them? Will they be harmonious? There's some of these, you know, principles that have been laid out in Mika, you could drive a train through them. So which facet is going to be the one that's sticky in any given country is all really important work. And then, of course, you've got, I mean, like we just go on and on. There's Mexico, Thailand, Japan. I mean, there's just so much coming, I think, at this space. Yeah, a couple of things. So first of all, Mika is markets and crypto assets regulation. That's about to be adopted in the European Union. But we'll talk about foreign jurisdictions later on in the show. So why don't we just discuss U.S. for now? So in that case, I'll kind of

run that down and say there's also all of the banking regulators, right? And so the intersection you're going to have there. We've got engagement over last year. We had the Department of Labor weighing in on stuff. We have the IRS weighing in on things. We've got OFAC to tornado cash to that point. So there's a lot of activity happening in Washington out of these executive agencies or out of these other agencies that are even independent. And I think that, you know, again, we should keep an eye on the Fed and what's happening out of Project Hamilton, other kinds of investigations into a U.S. domestic CVDC that I think are having influence, whether it's a treasury or whether it's on how others are thinking about this entire space, the digital asset space more broadly.

So one other thing that I did want to ask about, though, when it comes to Congress, well, a couple of things. So first of all, Congressman Patrick Henry is now the chairman of the House Financial Services Committee. And he's obviously extremely pro-cropto. He's a previous guest on this show. And I wondered how you expected his position in that role, plus the appointment. appointment of French Hill to lead the brand new subcommittee on digital assets financial technology to affect movement on crypto regulation this year? I think, you know, it's evidence of what she was arguing. I think it's going to be the Crypto Congress that might not get comprehensive legislation over the finish line,

kind of paradoxically there. Yeah, I think the importance of Patrick McHenry being the new chairman of the Financial Services Committee is pretty important. I think he's one of the most knowledgeable bio-crypto and defy members of Congress that we have. And I think that, you know, in that role, he can play an outsized role in shaping legislative packages. That will be enormously influential down the line. I think the best example being perhaps on custodial stable coin regulation, that was a deal that the administration and both parties in Congress and tried to put together, so to speak, last year and got pretty close. And I think is one area where everyone's at least in principle in agreement that it's necessary and would be beneficial. So I think that

might be an area of focus for the committee. And I think that we've already seen they also will be keenly interested, or at least Republicans on that committee, in conducting vigorous oversight of how the federal agencies are approaching their regulation of the crypto markets. The other thing about Patrick McHenry, of course, is that he has demonstrated ability to work across the aisle. And also, if you're watching the speaker hearings, you could see Patrick McHenry, really is somebody who is a mover and shaker within his own party. So not everyone is. And so the prominence of him, both as an influencer, in a bipartisan way, is something that shouldn't be understated. It's really important. And I also wanted to check in on the status of some major crypto legislation that was proposed previously. Obviously, we discussed the DCCPA. but there was also the Gillibrand-Lummus bill, and I wondered if either of these were sort of dead in the water. I have a sense they have to be reintroduced in this Congress, but I didn't know what your sense was of current support for either of these.

So they would have to be reintroduced, and I think the question is really what the appetite's going to be for the authors and co-sponsors of those bills from the past to kind of bring them forward in their form. You know, what I always say is like just because whether a bill's introduced or not introduced, the language that's agreed upon in a bill is really important. So if you get to a place where you have a coalition, you've got participants and co-sponsors from across, again, I don't even know how you, I don't even know, are we two parties anymore? Are we four parties? I mean, who knows? But like, if you've got this across

the political spectrum, you've got some alignment on at least kind of high-level principles that have then begun to be grounded into concrete language, that does have some stickiness. And so I don't know that there's appetite necessarily for those bills in that form because of everything that happened, you know, et cetera, especially about DCPA to move forward. And I think there's also considerations around the politics of that, how they're, how, you know, a now Republican-led House is going to engage the Democratic Senate, like those kinds of things are also complicated. But I do know that some of that language is very much active, I would say, or like live, if you want to put it that way. And it's ripe for being pulled into other legislation. So I think as Miller and I both said, we do think it's,

there's going to be a flurry of activity and drafting and all this kind of stuff. I think a lot of folks want to kind of own their own bill in a way, right? So trying to create coalition around that is going to be interesting, given that this is a topic a lot of folks in this crypto Congress want to engage on. As always, Laura, nothing is ever really, really dead. Like, that's not how it really works. So we kind of had to see how this plays out and what kind of coalitions are going to start forming as a lot of things get more baked and settled in the next few weeks and the next month in Washington. All right. So in a moment, we're going to run through a list of topics that people are very specifically interested in when it comes to crypto regulation, but first, a quick word

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Hey, Jamal, you've been promoted to pack leader. Save the everyday. with deals from Amazon. Back to my conversation with Sheila and Miller. For a long time, it was said that the first kind of crypto legislation that would likely be implemented in the U.S. would be something around stable coins. However, obviously, as we know, last fall, the DC CPA sort of seemed to maybe edge that aside. However, of course, nothing on either matter got passed.

But before leaving office, Pennsylvania, Senator Overson, former Pennsylvania Senator Pat Toomey did introduce a bill around stablecoins. And I wondered what you see currently in this Congress in terms of interest in passing stablecoin legislation. And also, if there is still interest, what will it look like and when do you think it might pass? I think that that remains true. That if Congress moves on one thing, if I were a betting man, I would bet on custodial stablecoin regulation. The Treasury Department is quite focused on Congress moving on that in their reports pursuant to the executive order. They gave principles for what that should look like. And so everyone I think is highly motivated to get that done. And

anything that touches the dollar, you know, the Congress and the executive are going to be keenly focused on what it would look like. You know, that's the, that's the billion dollar or a hundred billion dollar question in this instance. Trillion. Yeah, yeah. Nobody quite knows. I think Pat Team is one of the more thoughtful examples of what that could look like. I think that in this instance, Congress would be prudent to keep that massive topic as narrowly focused on custodial staple coins as possible and then go from there, which, you know, those being the vast majority of the market. But what that would look like, you know, who knows to that?

It's the most no-brainer thing that needs to get done, honestly. And the only reason it didn't go last year was politics. I think, I think. I think it's everyone who really cares about it has is informed about it, is educated about it. There have been so many different folks in Congress on, you know, both chambers and both sides of the aisle that have like waded into it and kind of understand it. It's just, it's, it's no-brainer. But again, is it going to be the first priority? I don't know that I necessarily, I think it should be because I think, again, it's like no-brainer, low-hanging fruit stuff that could just should be able to get across the line very easily. But this, we're just in this kind of

world where I did not think it would take 15 votes to get a speaker in the most, again, no-brainer vote. So it's really hard to say until some of these committees had been meeting and have put out some of their priorities. It's really hard to know what might go first. But so I'll just kind of leave it there and say, I really think that that should. But I also thought it should have last year. And I also was fairly confident it would not because of politics. So another big question that's been hanging over the crypto space for ages is, whether the default way to treat crypto should be as a security or a commodity. And at the moment, I was wondering whether you saw if there was momentum in one direction or the other

amongst these lawmakers. Yeah, I think that's probably one of the last questions that will be answered by Congress, if stable points are the first. Yeah. Yeah, I mean, to Sheila's point, it's an unfortunate situation because one would think that without classifying the asset as anything, you could construct some framework where consumers are being protected and other public policy objectives are being met, you know, whether you got a security commodity or a duck. In theory, that really shouldn't matter, but it does,

given how our system works here. So, yeah, I think that there is too many conflicting interests in this instance to resolving that question expeditiously. So I don't expect that to be addressed at least by Congress in the next two years. I do think that is a question that could potentially be clarified in the judiciary, whether via proactive litigation on behalf of the regulators like the XRP case, or alternatively through some proactive litigation, but we'll have to say. And when do you expect that XRP case might be resolved? That's such a great question.

This quarter, I think. We're all doing this quarter. When exactly, you know. This quarter? That's what most people are expecting, you know. Again, these things, wrenches get thrown all the time, so it's very hard to know.

I mean, I'm sure there's somebody who knows who's like really following the docket extremely closely. But we are expecting resolution of some kind this quarter, at least on some of the major questions. Of some kind. Of some kind. There will be appeals, I'm sure.

Have you asked a multi-year thing. going forward. That's right. But are you guys reading the tea leaves as going one way or the other on that one? I will say I've always felt it was a winnable case, whether it is one, by which I mean, wait, for the SEC or for ripple? For ripple. I've always felt that it was a winnable case for ripple. Whether it is one is up to a variety of factors, right? So we filed an amicus and I know others did as well because we did feel like there were issues there that were important and that were sufficiently unsettled, I think is the right word, right? That this could actually provide some resolution and that Ripple had a very strong case, all things considered on this particular issue that was brought, right?

So looking at the narrow four corners of this particular case. Look, I do think I agree with Miller in that I sure wish that this would be, you know, this would catapult up and legislative priority in there. And certainly Patrick McHenry has said he's very interested in this topic and figuring out, you know, asset classification, market structure, all these kinds of things. But again, because of the political situation that we're talking about, I agree. I think we're going to see whether it's the SEC coming out with more enforcement actions, seemingly out of the blue, whether it's them shoving, you know, classifications into cases that are really hard to defend because of the way that they're brought up, like the, you know, the, lawy case.

I think there's things like this that are probably going to continue happening because I don't, I don't see this SEC under this chair's guidance backing, backing down, if you will, in any way. I actually see them getting possibly more ferocious in some of this stuff. And so I do think you're going to see a judicial branch that's going to be forced to kind of reckon with what is the boundary of what the SEC can do without formal authority or formal rulemaking having been put into place, which is complicated. So, and that's what this is about fundamentally, right? You have to understand the asset classification question is really one of authority. It's a question of what authorities the CFTC have over what? And the SEC have. And is there a default where if the CFTC doesn't have authority, the SEC does have authority,

that's not really how things are set up. But that is seemingly the way that the SEC is trying to approach this is to say in the absence of guidance, the default should be that it is our territory and we have authority. I find that highly problematic, as does everyone in crypto for obvious reasons, right? Not the least of which is the SEC does have the ability to come out and put out some proactive guidelines that then could be discussed and there are rules around how to do that, et cetera, that's not what we're seeing. And so when we call for regulatory clarity, a lot of that has become, if we're just kind of very frank about it, has become, where does that boundary live? Right. And who gets to decide? So those are, when you phrase questions like that, those are

right for litigation kinds of questions. So I am expecting to see something that we, again, I don't know that any of us will know until we see it that comes out of the SEC, whether through enforcement or other kinds of ways, where you basically have a right opportunity for litigation, where we can kind of get these questions settled, at least by the courts. And it may be the courts say, no, you can't do that until Congress weighs in, but at least then we'll know where we are, right? It may not, I'm not saying that litigation is going to solve this, but I do think it would at least help weigh in on that boundary question

and almost like really put more pressure on Congress to really have to act to get this kind of settled once and for all. You mentioned SEC Chair Gary Gensler, and there's been a fair amount of criticism of him from certain members of Congress, but also I've seen commentary in the media. And some people, I mean, if you look at crypto Twitter, you will see people sort of making fun of the SEC for going after Kim Kardashian for her Instagram story promoting a small coin, but then missing the alleged fraud at FTX, and also in particular because it looked like he and other SEC officials were meeting with FTC to, I guess, maybe exempt them from certain regulation

or something like that. So I wondered whether you saw any of this criticism affecting his ability to either stay in the job or lead the agency. I don't think it's going to affect his ability to stay in the job. I think that his position on crypto is popular among the base of his core supporters. and therefore, you know, it's not something that I think is a political loser for him at the moment. I think to your second question, I do think, you know, crypto or not, the SEC isn't functioning terribly well right now. Right now, Chair Gensler is in a big fight with the SEC Union, his rulemaking agenda, the IG of the SEC released a report last year, pointing to an unusually high rate of staff turn due to a variety of factors, including the fact that Chair Gensler's regulatory

agenda is quite ambitious trying to do everything altogether all at once in the traditional financial markets. So I do think that his approach to crypto may not be a core issue with respect to his leadership of the agency. But how he's generally approached the job, I think, certainly has been. So I think there's, I think that the criticism comes from a couple different places. So I think as Miller noted, a lot of his core supporters are all in on this approach and don't seem to have much of a problem with it. Right. So we can kind of leave that there. I think there's two other things happening. One is this general Republican push against, you know, quote, activist agencies, right? And the idea that agencies should be narrower in their remit, they should have pretty prescribed things that they

can and can't do. They shouldn't be able to step outside of congressional authority to make, you know, rules, right? And opinions on that vary depending on where you fall on that spectrum. There are even some, interestingly enough, more centrist or moderate Democrats who are uncomfortable with just the way that this is going, the way that the rule, quote unquote, the rulemaking is kind of happening here, right? Which is not following sort of the usual process of things. And the fact that they haven't necessarily, there hasn't been a consultative process necessarily from what I understand with some of these folks, doesn't sit super well with them. then you've got, I think, others, particularly those who are in general looking to shrink government for different reasons, right?

Just not really so much to like excessive authority within federal agencies just in general or like it should just be smaller. Why are there so many people there? Why is the budget so big? Like those kinds of just general like small government kinds of folks, right, who are just not a fan of this approach either. So you've got a number of critics coming for different reasons. And then you've got people who are just like, look, there just seems to be a pretty black and white approach to crypto. was a general matter, and that in of itself is problematic because how can you be engaging in such black and white thinking around something that is still emerging and that is still, you know,

in its relative adolescence at best, if not infancy, depending on the subtopic within our industry, right? So all these different things, I think, do come into play. Now, to your question, though, I agree with Miller completely. I don't think any of that affects, you know, Sherr Gensler staying in the role, right, for the time being, and or being able to lead that agency. And I think the things that Miller cited, like the union issues and other kinds of personnel and staffing issues, which to be fair, you know, the entire federal government is having problems with staffing right now. There's a staffing shortage big time. So that's that's an issue across the government. But certainly something that we're seeing quite present at the SEC in terms of their ability to get and keep and retain folks who develop any expertise. Because the minute that they develop expertise, they tend to leave, not just for crypto, but for other industries that are attractive to them. So it's an ongoing problem, and I think that's going to affect, you look at the IRS, right, the defunding the IRS thing that just got, like, got through. You got speaker, you got the speaker vote and you got this, like, defund the IRS situation, right? So are we going to see some of those kinds of things happening?

Well, there's the precedent there at the IRS. So it's interesting to think about how this Congress might actually act if the agenda is going to be pushing one part of this house is going to be pushing very, very hard to limit government and to make everything kind of contracted in the state. smaller. There's been a desire for a Bitcoin ETF for a long time. And some of some people believe that because the SEC hasn't yet approved at Bitcoin ADF, that that's actually hurt the industry and maybe even played a role in some of the blowups we've seen this year. What do you think the prospects are for a Bitcoin ETF to be approved anytime soon? Well, this is also a question that is now subject to litigation. I think rightfully so. In my mind, there is a logical inconsistency between on the one hand, approving Bitcoin futures ETFs, and on the other hand, rejecting Bitcoins bought

ETFs because the underlying Bitcoin markets aren't regulated. And it just doesn't pass the smell test in my opinion, given that, of course, the futures markets are based on underlying Bitcoin markets as well. I think that the earliest we would see a Bitcoin ETF would be pursuant to Grayscale's potential success in that litigation, the agency I don't expect to do anything on a Bitcoin ETF willingly. I agree completely. And I just, on the litigation front, I think that, I think everybody's watching these two cases, the Ripple case that you mentioned, XRP, and then this case, because certainly if industry is successful, so if it's one, meaning by industry, I do think

you're going to see a lot of folks thinking about this as a path forward, even though it's, you know, it's costly, it's not ideal in many ways, but it is seemingly the way to get things potentially done with an agency that is not otherwise going to act. So what do you do on some level? So as we saw last fall, there's also been concern over how crypto regulation could treat Defi, for instance, whether or not it would force Defi to have KYC or know your customer controls. What's the attitude toward Defi and Congress now? I think that Congress, it has is a curious, is DFI curious for sure. I think it's dropped down the priority list a bit in the wake of the FTCS collapse, in Congress at least. The international regulators, you know, notwithstanding market developments in CFI last year are seemingly myopically focused on DFI for one reason or another, be it the Bank of International settlements or the Financial Stability Board. They're all still talking about DEPI. But you're exactly right, Laura. I think that right now, Congress that are most in Congress appreciate that there's this weird, cool new thing called

Defi, weird or cool, I guess depending on who the person is. And it's different from C-Fi. And for the most part, I think that's where policy makers are. Yeah, I feel like I need to clarify my question because when I say defy, I mean something where you participate in crypto using a self-custodial wallet. Do you feel that lawmakers understand kind of how that works and how that's different from something like FTCS? Well, you could self-custy your assets using a product like Ledger Live, but use FTCS Central

Limit Order Book. That's like a unique kind of centralized exchange where self-custody was happening and those folks didn't lose their assets. Yeah, the exposure is at the moment of settlement. And so there's like, you know, almost that's a market solution to this custody risk that FTCS customers are painfully aware of now. Overall, yes, I do think that. folks understand the concept of self-custody. And describing the fact that a key is a key, whether it's on a piece of paper in my wallet or being protected, I hope, in some more sophisticated way at Coinbase custody is an easy thing, or at least one of the easier things that we teach Congress. You know, I'll say when I testified in front of Senate Ag about this and talked about the

defy provisions or the language in these CPA being unworkable, which I used very specifically as a term, because I think that was kind of the takeaway was like, this is, even if the policy principles here are things that made sense, this framework is just literally, there's no way anybody can comply with the requests being put here. Because it's just not, that's not how it works, right? And I think that that sparked a lot of conversation. I think folks had been vaguely aware of some of this stuff, but they really didn't get the details of it exactly why it was unworkable. Like, why is this so different? Why can't you just apply principles that make sense or a process or practices that

make sense in a CIFI context or centralized context in this context? And so it was a chance, I think, for a whole bunch of us to go in and have these detailed conversations about how exactly it works. And some of that was about front end, some of that was technical, some of that was all kinds of things, right? And I also think it sparked interest from a variety of folks who hadn't heard about defy or just kind of didn't really didn't get that it was distinct, right? They just thought it was like a, they thought it was like, oh, there's like Alta Vista and Northern Lights, right? There's like

Bitcoin and there's defy. Like they didn't really get that it was a different thing. I think it'd heard of it, but didn't really know. So there was a lot of education that happened. What I think is, even more than that on the legislative side, because I do think a bunch of staff really do understand, at least the basics of this or what I think they really need to know to kind of craft effective legislation, whether that's politically viable or not is the separate question. But then, I think on the agency side, especially over at Treasury, you know, that I think is an interesting conversation. So tornado cash sparked a ton of very detailed conversations with, you know,

researchers, with academics, with technical experts around how all this worked and why did sanctioning this smart contract not make any sense that paved the way to a lot of conversations. We kind of backed into a lot of them were fundamentals, rather, around defy and again, how it actually works in practice. So I think a lot of that work remains intact. Like I think a lot of those folks are still around. They're still there. They're still interested. There's been a lot of sharing of things, you know, out to other folks that we didn't necessarily talk to directly. I've had, we've had tremendous pings on when I was at the World Economic Forum. We published this D5 policymaker's toolkit, like in 2020, I think it was. And that's gotten like a new round of engagement because it just kind

walks through, why is it so challenging? And how do we have to reimagine regulation as a general matter? Like, how do you regulate something that doesn't have a person at the middle of it or a corporate entity? Like, how do you do that? Literally, how do you do that? It's a really interesting question. So a lot of that, I think, kind of more academic type of thinking has also started to happen. And that's why I also feel like Miller feels that there is an understanding that this is new, it's early, the market is still shaping itself up. So unlike centralized systems, which have been around for a while, which do have analogs kind of in traditional markets, more so than defy does. I think there's an understanding from some folks that, okay, maybe,

like we saw in Mika and Europe, there's more that needs to be done here, more exploration, more learning, more education before we try to land language on how to regulate something that is just so innovative and so new. Oh, that's so fascinating what you said about tornado cash. You know, obviously at this moment, Coin Center is suing the office. of foreign assets control. And I think they're alleging that, you know, the action that they took there was actually unconstitutional. Now that there's been all that education and so many discussions around this, do you feel that people in government are kind of viewing what happened with Tornado cash as a mistake? Or do you feel that they're going to stick with the sanctions and maybe even

sanction, you know, other smart contracts or, you know, impose regulations on other smart contracts in the future that the crypto community maybe feels, does it make sense? I think that you have to look at what the public policy goals were at that time. And how kind of unusual that sort of action was happening and sort of the dead zone in August, like all of that, right? So what are the public policy goals around sanctioning anything? They are multifold. But at the core, it's to stop bad actors, often rogue states, from getting funding to do terrible

things with. You have to kind of look at that public policy goal. We actually wrote a paper at CCI. We actually asked someone named Juan Zarotti, who's a national security expert, to kind of think about this. And like, what are those goals, right? So do I think that OFAC is going to act differently if they feel there's a perceived threat on the part of a rogue state? Look, I mean, I've said this before. Like, post 9-11, we did not see a lot of holding back in Patriot Act, quote, compliance with things like the no-fly rule. The concern was not civil liberties and civil rights, the concern was, we can't have terrorists getting on planes, right? So you have to kind of imagine what the scope of the threat that they're perceiving might be. Now, all that being said,

I do think that a lot of the education done there was very helpful. And I think it was quite, it was very productive. And I think it was very helpful to explain why that was not necessarily achieve. What other ways might there be to achieve the same goals, or how can we think about those valid goals, I think we can acknowledge legitimate goals in the part of not wanting rogue states to do terrible things. I think it's probably a good idea for society. But what are other ways of getting there to don't involve this broad overreach and basically doing too much, right? Like just boiling the ocean rather than being very, very targeted. I do think there's an understanding that there are ways to do that. But at that time, my view, again, like no one ever shares anything until classified. But my take was always there's got to be something out there. that was so scary that they would engage in this kind of action in this kind of time frame with this kind of, you know, in this kind of way. So all that to say, you know, I don't, I don't tend to have a very, look, I am a huge civil rights, civil liberties person. I mean, if you like, if you look at my background, like big time. But I part of the reason that I feel so strongly about those issues is because, again, I watched as a person of South Asian descent, as a brown person post 9-11.

I watched those be just totally eroded in a certain community in, you know, in favor of the, of, again, quote, you know, national security, right? And I just think every time you put those things on balance, the government's going to come out and say, we'd rather not have bad people do horrible, awful things and rogue states do horrible awful things. And if people get stuffed up in that, and if we violate some constitutional freedoms, maybe that's a tradeoff we're willing to make. I think that absolutely merits a lawsuit, but I think that it's the kind of thing that is not necessarily going to, I think it's a position that isn't necessarily going to be easily undermined, if you want to put it that way. Yeah, you have to remember that.

action came after major acts like the Ronan Bridge Hack, which were attributed to the Lazarus Group, which is a North Green hacking group. So I think the perception was that this group was using this, I can't speak to the understanding of tornado cash that Treasury had before, you know, designating them the smart contracts on the entity list. But there is something through which the Lazarus group is moving a large amount of assets. And I think in any instance where that is happening, the federal government is going to do something, be it, you know, focused, elegant or not. I think this instance being one of the latter examples, but I think at the end of the day, you know, if that is happening, the predicate issue of, you know, massive hacks and it going to the Lazarus group, I think that as an industry as an ecosystem, it would be insane to think the government wouldn't do something. It's just not not, it's just not practical. But here's the thing. I actually think what countered that more effectively than anything else was what happened with Ukraine. And the idea that you had Russia trying to block receipt of any kind of trad-fi route to the Ukrainian government. And then you actually had crypto donations going to wallets that were legitimate, that were docks and self-docs by Ukrainian ministers. And that cat, and I testified about this as well, that catalyst providing a bridge while the

international community could figure out how to get funding through the, you know, billion dollars or whatever it's been at this point in time in aid over to that government to provide a wartime defense. I mean, that is, that's the kind of magnitude we're talking about here, right? You're talking about defense of a country against an invasion, and you're talking rogue state supplying arms potentially to that invader. This is the magnitude of what we're talking about. We're not talking about like, Alice and Bob, right? Like, Alison Bob in this case are like nation states. You know what I mean? So you just kind of have to take that into perspective and consideration. And the legal issues are critical. But I also think that what is the role of a government? How do they see themselves? And what's the role of national security? It is national security. And so again, putting that on balance with other things, you always have to take into perspective. Like, how are you going to make that argument? How are you going to make that compelling? And I just think that's a perspective. I think some folks sometimes don't necessarily take into consideration the way they should. Let's dive in Amika. We did talk about it briefly earlier on, but I just want to unpack what the regulation actually says and hear your thoughts on whether that's a good standard for the industry or, you know, just in general, like meaning if it's a good model for other jurisdictions to adopt.

I'll take the easy part and start with DFI, which is I think it takes a great model with respect to the D5 or C5 debate, which is let's start with C5. come back to D-Vi once we hit the books, so to speak. And I think that's exactly the right approach to take, in the vast majority of the consumers that policymakers are interested in protecting via regulation designed for C-Fi are in centralized exchanges. And so, you know, I think it's accomplishing their objectives to a large extent while smartly approaching D-Fi, which is to figure it out first. So with that, I'll leave the hard part to Sheila.

Yeah, I think the reason we were able to, I think, get some of that, or, you know, I think there was an openness to the conversation around DFI was the understanding of how early in the development it is. And so I think it's important to note that Mika, there is this thing possibly called Mika 2, you know. And I do think that that is a place where they are going to kind of look at the study that they commissioned in MECA 1, if you will, around DFI and look and see. So I don't think it's over yet, but I do think that that approach is very sensible. And I think it is a sensible approach, frankly, for the U.S. as well, which is to say, you have to kind of take a wait and see on this. Because, again, the market hasn't even decided which of these different kinds of offerings is really compelling,

going to be super sticky and like, where are we, what directions are going to try? All that kind of stuff is still being sorted out, right? So it's just very premature, I think. This is an example, in my opinion, a premature regulation. Anything that came down on defy now would just be premature. But I don't want people to think that you can take your eye off. the ball in Europe and think that defy is fully protected. That's not really what we have. What we have is recognition and acknowledgement of where we are in the evolution of the innovation. And then let's kind of

see what happens and then see what, if any, a regulatory response or legislative response might look like that would be constructive and that would achieve the goals of preserving innovation and the innovation space while also protecting users and consumers. So that's kind of where that landed. I think the same thing happened with NFTs, right? So again, seen as kind of new. And so there's the distinction in makeup between fractionalize NFTs and, you know, pull and fuel NFTs. And so, again, an understanding that this is a space that is emerging and evolving. So not to say that there won't be something that comes down from Europe that is quite even maybe dramatic on those topics, but it is that there is an understanding that we do need to do more education, do more study,

you know, and kind of get to a place where there's enough consistent understanding of what we're actually talking about before we try to get in there and, you know, influence the course and trajectory of how the innovation winds up being realized. And I think I saw a headline saying that something about how Mika could have prevented FTCS. Is that kind of what the core of the rules are, that it's something around custodial exchanges? Well, I think the idea is that there's not something specific in Mika that could have prevented FTX, right? So, and the question is like, well, should there have been and what should that have been? And so people talk about it as like the loophole or I think there's different kinds of language people are using around this. And again, I have to go back to saying,

this is, again, oldest crime in the book, right? The fact that eight criminal counts brought across a variety of different kinds of charges is a really big deal. And so I don't know that it is, I don't know that I would agree with the statement that there's something that that could have been put in in advance or that would have realistically been put in that would have prevented FTCS from happening. I think what you need to have is, more a thought about what are the ways in which humans are able to manipulate systems in ways that humans have been related systems since the dawn of time. And what protections do we have either to make that manipulation very transparent to have either because you have different checks

or there's all kinds of ways you could do that, right? Or to make it like functionally impossible to pull off. And those are different ways of achieving those kinds of goals. But again, I'll go back to the point I made earlier that I Miller agrees with, which is, Or this third path forward, right, which is the technical solution and making architecture and infrastructure around it that actually makes all of that de facto or default visible or very, very difficult to engage in without a measure of transparency that could lead to immediate accountability around it. So all those things I think are being considered.

What I like about the approach in Mika, again, is that they did take into consideration the innovations around the technology. You can kind of see that sprinkled throughout the entire comprehensive. legislation is this acknowledgement. There is something here that is new and that we don't really know what to do with from Rutgers perspective yet, but we think that we need to spend more time thinking about that and looking at and examining, you know, what is that new transparency or that new visibility or all those different kinds of things? What's that going to mean? The other thing about Mika that is not really widely known that I think is important is there was a big consideration

of AI and the influence of how is AI going to affect the Internet as a general matter? How it going to affect business models, how's it going to affect processes, all of that. And so there's an awareness that there's a lot happening in the AI space as well. And so Mika, too, to the extent that that becomes a thing, is, I think, going to look at the influence and the impact of AI on some of the ways that blockchain technology is deployed and look and see as their intersection there. So there's all kinds of commissions and other things in the EU focused on the EP, focus specifically on artificial intelligence as well. And so I think look to see some of that language or thinking, influencing the way that some Europeans, legislators and policymakers think about the space as well. China is moving forward aggressively with multiple different enterprise blockchain projects plus also its digital yuan. I wondered how you thought that could affect other jurisdictions, including the U.S.

How long do you want me to go on? Because I have a lot to say about this topic. You know, I think, yeah, I think that it would be very foolish, I think, for anyone in any jurisdiction in the world to underestimate the influence of what is happening in China on policy literally everywhere else in the entire world. I mean, it is just a very, very important set of developments that have happened there. And I don't mean China on crypto. It's actually somewhat irrelevant. I mean China on CBDCs, on something about digital currencies and thinking about digital assets as a general. matter, right? So all the mining and this and that that I think the industry kind of focuses on is actually, I think, policy-wise, secondary in many ways to what is happening with digital you want. And the reason I say that is I think you have to look ahead to a world in which China has moved digital yuan beyond its borders. So despite the PVOC saying over and over again, like, it's just going to stay within China and everyone in China will use it, which leads to its own

potential human rights issues and other kinds of issues that we don't have to spend time on today, but we can if you want to. I think we're already seeing the encroachment of the data surveillance kind of approach. We're seeing some of the engagement in Myanmar that's happened around this stuff. But the bigger and more important thing is Chinese government investment into infrastructure all over the world. I mean specifically into Latin America and into Africa, to the African continent, particularly sub-Saharan Africa. And so there's already been, there was a story that came out, a couple of stories, I think they're like 2020, around Zambia, even around India, Modi and China, the Chinese government, basically going to them and saying,

we will invest significant, huge, huge amounts of investment into your infrastructure, into your roads, into your roads, into your everything, to help this crumbling infrastructure. And in exchange, you know, you use digital money. You would use the digital yuan. You would basically, that would be the unit of currency that we'd engage in transactions with. And both those countries were like, nope, no thanks. But my question is, given that we have a global economy that is, not willing to, A, allow for default on debt, and B, is not willing to relieve a lot of these

countries of their significant debt burden, is that going to last forever? We have climate change coming. We have infrastructure that's crumbling all over the world, in many parts of the world in the global south. We've got people that are migrating at increasing frequency in these on these continents, in South America and in Africa. There is a need for this kind of investment. How long are some of these governments going to hold out and say, forget it, we don't want a surveillance tool, whatever they think it is, we don't want, you know, this kind of money and a requirement around using these payment rails to come into our country. Is that going to last forever? I don't think so. And so I think we're looking at a world in which in the absence of that kind of debt relief or

support in other ways and, you know, look at no further than what's the willingness to support Ukraine to think, I don't think it's, I don't think the case to be made for like building railroads in certain parts of the country or the world is other countries is going to like be a big sell, right? So you're looking at a world in which all those factors come together. And next thing you know, you've got this digital currency coming out of China with all the data capture other things that are part of it. Maybe, maybe not, right? There's design choices that could happen there. Who knows? And suddenly that is becoming a dominant method of engaging in cross-border transactions. And so that is happening. It's a thing that is happening. It's a phenomenon that's really

important to consider. Even if you look at the fact that the population of India is going to lap China, India has its own. You didn't ask about India, but I'll go there on it because it's so related. India has its own unified payments infrastructure and architecture there. They already have most of their money happening in digital ways. It's not a blockchain-backed system, at least at this time. Similarly, right, they have no expressed interest in moving beyond borders, but as India becomes the most populous country in the world, you're going to see out of these two countries tremendous activity in the digital currency space

that I think is going to set the stage. Digital euro, great, fine, whatever. You've already got these two massive populations used to paying in this way. the cultural shift has already happened. So what's that going to mean for everybody else? So I just think that this is a part of the world. It is a massively, rapidly moving phenomenon that's happening in real time. That's not getting, I think, some of the attention that it should.

Because, of course, that's going to have implications on how you think about policy in every space. National security, banking, like in everything, in everything. I think also another thing to keep in mind is that countries don't necessarily need to sign up for this because private businesses, I think, are much more likely to do so without, you know, being able to resist the temptation or the coercion to use something like an ER&B. You know, for example, China could predicate market access on foreign businesses using the ER&B to do business and to, you know, take their assets out of the country. And I think, you know, given the evidence of particularly the U.S. businesses approach to China, that wouldn't be a terribly high.

cost in the minds of many business leaders. I think they like the broader poet here that I think Sheila hit the nail on the head with is that CBDC is like just saying that is like a very meaningless term and that it can really is a it's a tabular rasa. You could have the Chinese R&B ERMB system which in my mind is almost like the the apotheosis of a totalitarian technology or you could design a CBDC that has the fundamental characteristics of cash being completely fungible, being anonymous, being peer to peer. So I think that the CBDC debate kind of encapsulates these broader, or reflect broader societal debates about, you know, what do we value as the society? Is it,

centralized omniscience or is it individual privacy? And it's, I think, you know, the new frontier of that debate, I think just one with, given how fundamental to everyday life money is, one with pretty, pretty extreme high stakes. Yeah. And I think it's important to note that the privacy issues are, they're kind of like spotlighted and in an extreme way, you know, in in ERMB. I mean, for sure, I think that's just true. However, you know, we've got, I can't, I still can't get over what's happened in Arizona, right, in our own country, where you've had using, subpoenas deemed illegal, you've had basically seizure of personal transaction records by the Attorney General, which is outrageous to me, absolutely outrageous. So these kinds of things, like we are in a battle over privacy at a global scale. And we are seeing different nations come down with very different views on what they think the importance of privacy is, what privacy even means, right? So you had Christine Lagarde in May, rather, in May 2022 in Davos, she was basically saying digital euro in four years. And, you know, the ECB and others have said we do want to lean into. privacy. We do think it's important. They did put out GDPR, right? Europe does tend to take consumer

privacy, particularly around financial transactions, somewhat seriously. Here, the Fed has basically said, like, I don't really know if we're going to do a CVDC of any kind, a position, by the way, I support. I don't, I looked at this for a long time. I don't necessarily see what the point of such a thing would be. Regardless, what is going to be lost, because not every country is going to issue their own is you're going to have a default privacy setting in the digital currency space and the usage of some of this stuff is going to wind up being fought at the kind of user level, right? And that's not always going to be people's choice. To Miller's point about private businesses, saying, okay, sure, as long as I'm within China's borders, I'll use your system because I want to be there and, you know, why not, right?

Those things are sticky and contagious. And before you know it, you kind of get that contagion of the orientation you have where something that's fundamental is privacy leading over to other parts of your system. And that's just something that I think is really, really important. And we should all be paying. a tremendous amount of attention to, which I know in this space, of course, we are. All right. Well, it's sort of a bleak note to end on. I guess it's good to, you know, have everybody, you know, pay attention to these important issues. And I should mention that I had Michael Casey and Neil Ferguson on the show. It was actually, it might even be like two years ago now, but the point is that we actually discussed a lot of these issues in depth. So I would urge you to go back and listen to that if you missed that episode.

we'll link to it in the show notes. Sheila and Miller, this has been such a pleasure. Where can people learn more about you and your work? I'm certainly on Twitter. And so is the Crypto Council at Crypto underscore Council. And I'm Sheila underscore Warren. Yes, find us on Twitter at Fund underscore D5. Perfect. It's been great having you on our change.

Thank you, Laura. Thanks so much for joining us today to learn more about Sheila, Miller, and what crypto regulation could look like in 2023. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with Oprah Anthony Youn, Mark Murdock, Matt Pilchard, Zach Seward, Juan Aranavich, Sam Shreiram, Pam Majimdar, Shishonk, and CLK transcription. Thanks for listening.