Unchained - How the Greatest Decentralizing Force for Crypto Projects Is the SEC - Ep.278

Starting point is 00:00:00 Hi, all, before we begin, two quick announcements. First, if you haven't yet fill out the Unchained Survey, this is the last week, you can fill it out and enter to win a BTC candle, which is scented with Satoshi Wood, Musk, Musk, Tusk, Tulip bulbs, and Finite Minerals. Head to surveymonkey.com slash R slash Unchained 2021 to fill out the survey by end of day, Friday, October 8th. We will announce the winners in next week's show. Again, the survey is at SurveyMonkey.com slash R slash Unchained 2021.

Starting point is 00:00:28 You can also find the link in the show. show notes. Second, as I mentioned earlier, I'm now writing a blog on Medium. This week, I have a post up on my interview with today's guests, Collins Belton and Greg Exothalus. It was such an epic discussion that I felt it was worth calling out some of the highlights and linking to some of the news we discuss. Head to medium.com slash at Laura Shin to check out the post and share it with your friends. Again, the URL is medium.com slash at Laura Shin. And be sure to follow me there. And now on to the show. Hi, everyone.

Starting point is 00:01:04 Welcome to Unchained, your no hype resource for all things Crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time.

Starting point is 00:01:19 This is the October 5th, 2021 episode of Unchained. My book, The Cryptopians, idealism, greed, lies in the making of the first big cryptocurrency craze, is available for pre-order on Amazon, Barnes & Noble, or any of your favorite bookstores. Go to Bitley slash Cryptopians. That's B-I-T-L-Y-S-C-R-Y-P-T-O-P-I-A-N-S and pre-order today.

Starting point is 00:01:43 The Crypto.com app lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins, paid weekly. Download the Crypto.com app and get $25 with the code. Laura. The link is in the description. The Nodalcash app makes earning crypto on your smartphone as easy as turning on your Bluetooth. Notal Cash is private, secure, and available on iOS and Android. Visit nodle.io.com slash cash. That's Nodal.io slash cash to start earning. Today's guest is Greg X. Avalis, General Counsel at Multicoin, and Collins Belton, founding partner at

Starting point is 00:02:26 Brookwood PC. Welcome, Greg and Collins. Thanks for having us. Thanks, Laura. So we are recording on Friday, October 1st, and yesterday was the last day of the SEC and CFTC's fiscal year. And I think a lot of lawyers in this face and I also were expecting that there might be some enforcement actions. And there were, but they were kind of small and not like super worth diving into.

Starting point is 00:02:53 And in a big way, we could touch on them. But I'm curious, Greg and Collins, if you. have an opinion as to why we didn't see any big enforcement actions from these regulators? Well, I think from my perspective, I mean, the federal government is typically pretty good about keeping a close lid on enforcement actions as they're going on, in particular, where they stand. Sometimes you'll hear about information sweeps or things will leak out, but it's typically not in the interest of parties who are being investigated or for the prosecutors themselves to have things come out in the open.

Starting point is 00:03:33 And obviously, there are a lot of really complex issues that don't necessarily always fit neatly into a calendar. I think, yeah, a little surprise that the closest thing we had to a major crypto action or settlement was a relatively de minimis settlement with Cracken regarding their margin trading program, as well as a handful of action. that appeared to be only tangentially related to crypto from the CFTC. So a little surprising. It's interesting.

Starting point is 00:04:06 You say that too, Greg, because I think one of the other things that we maybe don't appreciate as lawyers in the space, too, is that there was some movement. One, I think on the DMM and DMG case, I think for a lot of us in crypto, we didn't view that as that impactful because the view was that's not really, you know, defy. But at the same time, I think, you know, maybe there's an internal view. that that's setting, you know, some major precedent for them potentially being able to pursue defy. And then I think, you know, the other interesting thing, which, you know, has obviously been in the news and we probably can talk about specifics here, given client confidentiality,

Starting point is 00:04:39 but just generally speaking, I think it's pretty well known that there's been, you know, a slew of investigative kind of requests and not necessarily subpoenas, but just, hey, we're looking into this space. And I do think that that may, you know, be a bit more of a blitz than what people appreciate. So perhaps it's just that this year, a lot of the attention was more privately focused rather than publicly focused is at least one theory I had. And, Collins, just to make sure all listeners are on the same page, tell us what the DMM and DMG cases were. Oh, sure.

Starting point is 00:05:12 So the DMM and DMG cases, I think it stood for decentralized money management or something. That was the ticker for the two tokens. And it essentially was, you know, ostensibly promoting itself as kind of like a yield farming, yield aggregation play. So for those that are kind of familiar with defy, you may be aware of that, but for those that aren't in very, very simple terms, they were essentially telling people that they had a programmatic way for people to deposit money and then have it be essentially managed on a non-custodial basis in order to generate returns. That obviously raises questions generally in the legal industry, but in particular, the issue here was that, one, these folks were not actually using, you know, programmatic enforcement or any type of non-custodial mechanism. They were, you know, just committing fraud, taking folks money and then managing it themselves. And then secondly, they actually weren't actually managing that.

Starting point is 00:06:01 But the important or potentially important thing is that at least the SEC framed it as, hey, this is a defy offering. And we're going after it because we think the tokens themselves are securities. One is an equity security. One has a note under that Reeves analysis. I know we talked about that a few weeks ago. We'll get into that. And then they also layered in the fact that there was fraud.

Starting point is 00:06:23 and or, you know, some type of deception. So that latter part is what I think was really material, but the former part was really important because it suggested, you know, two really important things. One, they're obviously looking at what they think is defy. And two, they're now looking at securities that go beyond just the Howey test. I think that was the first or maybe second time we saw in a settlement or an enforcement action where they explicitly referenced Reeves.

Starting point is 00:06:48 Greg, correct me if I'm wrong, I think that was the first or second time in a formal order for digital assets where they referenced it. I think that's right. It had previously been discussed at least one of the trio of no action letters that came out in 2019. I think it may have been pocketful of quarters, had potentially a Reeves discussion, or turnkey. It was one of the two.

Starting point is 00:07:12 But, yeah, I think it's reflective of our two definitions of decentralized in name only. This was an example where I think a lot of. of people in the space, pointed at that action and said, well, this is not really defy. It's, this is decentralized in name only, in that they are literally just putting decentralized on the name, whereas that same term of Dino was used again in congressional hearings, I think a couple of weeks ago, to refer, and I think perhaps by a couple of folks, including Chair Gensler, to refer to decentralized. projects that perhaps vary on some gradation of actual decentralization, but he taking the

Starting point is 00:08:02 perspective that these were not really decentralized in significant material ways. Yeah, and I think for the DMM and DMG cases, those are the ones, as you said, they were called decentralized a name only, but I noticed that SEC Commissioner has her purse also called them that. And I don't know if she coined the phrase or not, but clearly there is at least somebody at a high level in the SEC who makes the difference between projects like that versus ones that are legitimately either decentralized or trying to be. You know, I'm not sure what her view is on that. So we've mentioned this Reeves case a few times. And I just want to make sure people understand what that is and why that's significant. As you said, this was brought up in the context as another way to, you know, look at this question of whether or not a token is a security. So after the Howey Test, so can you give us a sense of what that case says and then how it would apply here? Ernst & Young versus Reeves, I should say, Reeves versus Ernst & Young, I should say.

Starting point is 00:09:06 A Supreme Court case from, I think, 1990, that addressed sort of a fundamental issue of whether or not a note is a security. And to put some context in that, there are a number of federal securities laws. The three that we probably think most about when we're talking about what is the definition of a security would be the 1933 Act, the Securities Act, the Securities Act of 1934, and the Investment Company Act of 1940, together with the Investment Advisors Act Act of 1940. The 33 and 34 Acts have fundamentally the same definition of security, and it lists out a litany of different types, from the standard stuff like equity to the more flexible definitions like investment contracts that everyone in the crypto space is very familiar with,

Starting point is 00:09:59 thanks to the Howie Test, which is how courts will interpret whether a particular scheme is an investment contract. Reeves takes a look at a different set of that definition, which is notes, and in some cases, some might try and also apply it to evidence of indebtedness, which are codified as types of securities. And there's an explicit presumption that a note is a security, unless it fits certain families of notes that are known to be more commercial in nature than investment in nature. So in the Reeves case, the court set out a slew of a slew of, a slew of, of categories, I think it was seven or eight categories that were called families of commercial arrangements. And if your specific instrument, your note, was within those seven families of

Starting point is 00:11:00 commercial non-security notes, they would not be deemed to be a security. For ones that were not clearly within those seven families, the court established a test that looked at four different categories on a balancing test. So in Howie, it's three or four, depending on how you want to look at the definition, three or four prongs, and all of them must be satisfied to be a security, whereas in Reeves, it's a balancing test. It's not quite as algorithmic. And those things, those factors that you look at are the motivation of the seller and the buyer in the transaction. Is it commercial in nature? Is it investment in nature? The plan of distribution of the instrument. Is it being broadly distributed to the public or is it more specific and bilateral or closely distributed?

Starting point is 00:11:51 The reasonable expectations of the investing public would people think of it as a security? And the presence of an alternative regulatory regime, which is probably the most important one that we look at in a lot of cases for the crypto community. is, is there an alternative regulatory regime that applies that would make something that might otherwise be a note or a security note, rather, I should say, into something that would be viewed as a non-security? And so what do you think the SEC is doing by now applying Reeves a few times here? Like if you're kind of reading the tea leaves, what would you say is maybe the next evolution in their application of existing case?

Starting point is 00:12:37 I guess it is to the crypto space. Well, I think that, you know, and I'll let Collins way in here, but I think, you know, we've looked at where they're applying it, and it's often been in these lending type of programs where we've also seen action on the state level. And while the initial actions that were targeted at BlockFi from New Jersey and Alabama and Texas and Kentucky or Vermont, I can't recall which,

Starting point is 00:13:07 A lot of that focused on Howie, but a few of the states, particularly Texas, also referenced Reeves. And I think some of the conversation around it targets Reeves in no small part because some of these relationships do look a little bit more like a debt relationship than an investment into an enterprise. So I don't know, Collins, if you want to chime in on that. Yeah, I mean, I definitely agree. I think where I'm expecting to see it most applied or most trotted out is going to be in the context of the type of lending or potentially, I wouldn't call it necessarily re-hypothication, but re-hypublication-like activities. I think those are probably the most prominent areas where they'll look to raise it in the defy context. Now, obviously, for centralized entities, and it goes to a point that you raise, Laura, I think it's in some ways sometimes easier to make that argument from, at least the government's perspective, as I view it, because it's a lot easier to say,

Starting point is 00:14:09 hey, you've got somebody who's taking in this capital who may either be managing it or at least be, you know, subjecting that capital to whatever other downstream flows are in their business. And, you know, like Greg was talking about the 33 Act, the 34 Act, the 40 Acts, all of those are, you know, largely predicated on the existence of intermediaries and how we either want to constrain their behavior or prescribe some type of behavior that they should be taking. And so when you've got those traditional actors, I think, you know, mapping that framework on is a little bit easier. For the same reason, I think you start to see why the distinctions that folks like Hester and some in the crypto community want to make between kind of a truly decentralized protocol versus a CD5 protocol or a semi-centralized protocol is really material. Because in the absence of those intermediaries, some of the questions and the natures of the questions potentially change.

Starting point is 00:15:03 And maybe normatively they should is what I think a lot of. if people want to argue on the policy side. Okay, so let's actually just focus the next part of the discussion on things that are obviously centralized, which would be lending products from companies like BlockFi or Celsius or this proposed product from Coinbase called Coinbase Lent, which they ended up deciding not to pursue because the SEC threatened to sue them that they did. So when you look at those, what's your opinion? Do those look like securities to you, according to this precedent that we've discussed here? Or would you say it looks like something

Starting point is 00:15:46 different and maybe it's not a security? So I'm going to preface this just by saying I did, I've previously worked with some of the folks. So I can't necessarily speak on their particular business models. But I guess I would generally say, I think that if there is an argument on the securities law side of things, it's not fruitful from my perspective to focus on the notes or certificate of indebtedness or investment contract analysis. I think what, and I think my public position has generally been shoehorning in these assets and to those tests

Starting point is 00:16:20 is not the appropriate way to do so. At the same time, you know, I'm happy to concede particularly with some of the arrangements that I've seen and not with these three particular companies, but others that I've, you know, talk to over the years or seen in their business models, I'll definitely concede that I think

Starting point is 00:16:34 some of these models will almost certainly constitute securities, but not because they are an evidence of indebtedness to a company or not because it's a note-like investment that traditionally falls in those categories. And I don't think it even is one of these things where they're necessarily managing people's money in the way that we would expect an equity contract. I think the more appropriate way, and this is where I really struggle with the SEC's approach right now is to say, look, we've got, like Greg said, a litany of definitions here. I mean, it's like 30 or 40 definitions, two of which are things like participation in a profit sharing scheme or things like an asset back security or a bond. Those three categories are much more

Starting point is 00:17:12 appropriate to discuss. And, you know, participation in a profit sharing scheme have sometimes relied on the Howie test, which is why I think that it shows why treating those as equity instruments is probably not the right move. But I would say it's a harder argument to say, say something like a central entity issuing you a receipt and that entitles you to some coupon payment in the future doesn't look like a bond or doesn't look like some type of asset back security, but that's going to require that they build out the jurisprudence and the case law. And I think that's important for us to push because if we're saying, hey, we want guidance, we want clarity, where are the lines, what are we looking to do, them saying, hey, we're going to shoehorn it into this test.

Starting point is 00:17:50 That doesn't really fit either of these parameters, but you guys should just figure it out is not appropriate, especially if you've got a large institution that's looking to follow our laws, that's registered publicly, that's reaching out to them, at a certain point you might have to say, look, it's incumbent on us as the rulemaker. We have rulemaking authority to start expanding our previous guidance and start applying, you know, our frameworks to existing definitions. So that's generally my perspective there without necessarily taking a view on any of those three products.

Starting point is 00:18:19 Yeah, I think I'm sort of in the same boat with Collins as I've done a little work in the space in the past, so I don't want to go too deep on specifics. At the same time, one thing that I think it's worthwhile to note is this isn't the only scheme out there. Crypto is the only industry that has relationships like this. For example, within the investable asset market, you have securities lending programs that are operated by broker dealers, and you have commodity rehypothecation that's operated by a number of commodity warehouse storage facilities where you do have, you know, custodians who are rehypothicating and utilizing underlying assets outside of a bank framework and outside of a securities framework. And I think one of the

Starting point is 00:19:14 things that you do look at there, and perhaps it is returning it to Reeves, is what's basically the purpose of the relationship. Does it look like a commercial relationship or does it look like an investment relationship? And it's a nice reminder that all of these lending programs are not created and structured in the same way. So we've got two prominent programs from reasonably well regulated U.S. exchanges. Coinbase proposed their lend product. Gemini and Genesis trading have the earned facility that is actually a situation where Gemini customers lend to Genesis and it's facilitated by Gemini. But those are programs that you could make an argument is a add-on to a relationship that is principally commercial in nature, the custodial relationship,

Starting point is 00:20:15 the exchange business relationship that was pre-existing. And this starts to look a little bit more like securities lending or commodities rehypification, it's a little different when the entire purpose of the scheme and the arrangement is to facilitate this interest-bearing account. So I think there are some distinctions, which may create some nuance, but I otherwise agree with Collins that it's not apples to apples when we're trying to look at what these products should be weighed against versus something like an ICO where I think Howie is really probably a pretty appropriate court doctrine to look for. And then would you agree with Collins?

Starting point is 00:21:00 And correct me, Collins, if I don't summarize your position accurately. But it seems like you were saying that you felt that there should just be new legislation to deal with these new types of products that maybe aren't covered by existing regulation. Well, no, not even necessarily new legislation. Like the definitions that I described to you are already included in the Securities Act and the Exchange Act. The reason why the SEC prefers to default to an investment contract or a note is there's established case law. And there are two reasons why that's important. One, there's a roadmap for them to follow that can reuse prior work.

Starting point is 00:21:34 And that really does matter for lawyers. If you don't aim to recreate the wheel every time. But the second is that extending case law or getting new case law can be a bit of a risky business, particularly for a regulatory body. because if they are wrong, then it establishes precedent that many, many other people in the industry may want to follow and it may, you know, incentivize behavior that they may want to dissuade. Now, obviously, there's a question as to whether they should, you know, want to dissuade behavior that a judicial body has determined is legal. But regardless, you know, administrative bodies are still political organs and they are impacted by both political realities, but also just administrative priorities. So I think that it's not necessarily promulgating new laws. I certainly think we should be during that in some areas. But to be frank, for a lot of the securities law matters, I don't necessarily think that's needed. And this is kind of important.

Starting point is 00:22:25 Again, I'm assuming we're still all focused on the centralized components here. Yeah. I think in the decentralized context is a bit different. But one of the things that we've been talking about, and it really frustrates me that it's not more publicly known, is that a lot of these exchanges, I don't think their problem is, hey, these are securities and we don't want to offer securities.

Starting point is 00:22:44 For the most part, in practice, for the end user and even for the exchanges for most of management other than the compliance function, it's not really going to be a huge difference for them, whether they're issuing like this asset from a BD entity or a money transmitter. They're going to have very similar requirements in terms of customer identification. Now, yes, there are other obligations that will apply to a securities entity that may not apply to a money transmitter. But at the end of the day, for the most part, your customers, they're not really exposed to that. And maybe a little bit more data collection. And even internally, most of the stakeholders aren't exposed that. It's just, you

Starting point is 00:23:16 additional compliance cause. So what frustrates me is that Coinbase has a broker dealer. And as does do many other U.S. entities, the reason why they can't offer these products right now is not because they're intransigent and don't want to like offer any security. Like for them would be the same thing. At the end of the day, right? Like I come to Coinbase or you just redirect me to Coinbase securities. I sign up the same account. You have the same information. It's not going to be a huge difference to me either way. And then I can get my lend product. The reason why they can't is actually because the SEC also won't allow FINRA to approve crypto custodians as BDs. So we have broker dealers that are in the crypto business, but none or at least none that are

Starting point is 00:23:55 currently active that I'm aware of as of this month that are allowed to essentially fully satisfy a certain set of rules that apply to broker dealers at custody securities. And so we're in this weird catch-22 where we have people that are saying, hey, I'm willing to register and be this, you know, regulated entity, go ahead and regulate me. And I bought an entity. for ready to go once you approve the license. And the SEC is saying, yeah, hold off. We're not sure. But also this is a security, so you need a securities entity.

Starting point is 00:24:24 It's a very bizarre situation. And I think it's a very important point because I see so many people with these takes of, oh, these guys don't want to follow the law or something. And it's like, Coinbase brought this broker dealer, I think in like 2019 with the expectation of being able to offer crypto securities. And it's just been almost three years with no approval. So I think it's a bit disingenuous when I hear Gary and many other. other folks saying, hey, come and talk to us.

Starting point is 00:24:47 When it's like, hey, they haven't just talked to you. They bought a BD. They put it through the licensure process. And now they've just been waiting for two years. It's very disingenuous to put it like everyone's shooting from the hip because we're in tech or something like that. And I think it wasn't even just one. I think they actually bought a couple of BDs.

Starting point is 00:25:04 I think it's a two or three. It was two or three around, all in 2018 or 2019. And I think it's been a significant point of frustration, you know, I'm not a broker-dealer lawyer, but some of the BD lawyers in the space, I think one remarked to me that she had something like 50 clients in the pipeline trying to get the ball moved forward with FINRA and the SEC, which is not to say that there aren't some tough issues. But when we look at the industry and the criticism of the industry that sometimes takes place, the level of intractability of this system. to quickly adopt, or adapt, I should say, to what's happening in the market. It's not just on the companies that are building. It's also in the need to have a regulatory environment that responsibly promotes responsible innovation.

Starting point is 00:26:04 Yeah, actually, just listening to you guys talk, it made me think, and this is just me guessing, I have done no reporting into this other than just talking to crypto lawyers. I mean, I haven't spoken to anyone at the SEC or anything like that. But just listening to this, it makes me think, oh, it's probably just they haven't figured out how they want to regulate the space. And so they're just trying to keep people in a holding pattern. What do you think of that theory? I mean, I think it's right. But, I mean, that's problematic when you're publicly saying to people come in or register and do it the right way, people go to do it.

Starting point is 00:26:37 And you say, okay, we'll get back to you in three to five years. That's, it's not reasonable. And so that's why it's like, it's extremely frustrating sometimes to see some of the statements publicly as though everyone in crypto is running around dodging clients. And I can definitely, you know, kind of co-sign what Greg has said. I mean, two years ago, I knew somebody saying that, and maybe it's the same person. And they had, you know, 20 or 30 people waiting. So I can only imagine that the list has grown. I've talked to FINRA about this issue.

Starting point is 00:27:04 I've had people talk to the SEC. It's not like, it's strange when you talk to them. and there's almost like a, it's almost like a sympathetic recognition. Like, hey, we get it. We're working really hard. I would appreciate that if, but for the fact that you,

Starting point is 00:27:20 you know, you turn on the news and you've got somebody saying, hey, these guys don't want to comply. And it's like, what's going on? And let's not, let's not,

Starting point is 00:27:26 you know, understate the reality here. A significant swath of crypto actors are probably not great actors and we should be cleaning these folks up. But that's the thing, right? If we were focused on them, we could do that.

Starting point is 00:27:38 And what, you know, what I guess I'll end my, little miniran here, which by saying it's funny because sometimes I see people say, like, oh, like 90% or 95% of these are valueless. Well, first of all, you know, I don't think the hit rate in regular startup is that much higher. But secondly, you know, at this point, there's 30,000 plus companies. That's still 3,000 companies that are valid. Like, that's, that's a huge amount of companies with tens of thousands or hundreds of thousands of people

Starting point is 00:28:02 working for them. It's no longer like, oh, hey, you've got 12 legitimate actors and 50 million bad actors. It's like even if you want to take the most draconian, you know, 95%, 99% of people are bad actors, that's still hundreds of companies, almost as much as the Fortune 500. So at this point, I think it's a little, like I said, it's frustrating to have the condescension when people are acting in good faith, and there's a wide swath of actors that are trying to make that outreach. I was just going to say, Laura, first off, you know, completely agree with what Colin said, and there is a degree of frustration and not just with the slow progress, but also the narrative that's being created around it. What I don't want us to lose sight of is there also

Starting point is 00:28:46 are a lot of people who are working very hard on both the political side as well as on the regulatory side, people working within these regulatory bodies. We're taking great pains to actually understand and try, the difference is that that doesn't always lead to policy or affirmative movement that actually allows innovation to occur here in the U.S. So one of our continuing themes of concern over the course of 2021 is, is this the year that more and more of crypto gets pushed outside of the U.S., both on a development side and also on a market side? the number of opportunities for participation in this exciting new ecosystem gets smaller and smaller. You know, Collins can probably speak better to what we saw yesterday with geo-blocking.

Starting point is 00:29:43 And I know we're still on C-Fi, but when we get to D-Fi talking about what's going on with geo-blocking of USIPs. And, you know, it's a shame. And I think it's important that we work to elevate the parties in the regulatory apparatus or the political apparatus who are working to, again, try and promote reasonable and responsible regulation and to be able to foster a crypto ecosystem here in the U.S. Yeah. So why don't we discuss Defi actually momentarily? Because we're halfway through the show. But first, a quick word from the sponsors who make this show possible. With Nodal Cash, you can earn crypto on your mobile device for free with no hardware to purchase. You just download the Nodalcash app, turn on your Bluetooth, and start earning. Notal Cash is private, secure, and easy to earn. Whether you're on the go, stuck in traffic, or even while you're sleeping.

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Starting point is 00:33:04 What would you say is, so in a way, I almost feel like a lot of this discussion is subtext for what's going on in defy. Like when you look at what's happening with the regulators and where things are going, what do you think is going to be the regulatory stance toward defy? I can start or Greg do you want to start since I've talked a lot on the last question and I can concede the Go ahead Collins because I know you have opinions on this. No I think my one-liner response is not great Bob. No, I mean, I actually long term I actually am more optimistic than I think one, most people probably are to my public posting probably suggest. And I guess I'll preface it's all by saying. And sometimes I think people think that I'm like despondent,

Starting point is 00:33:54 but it's really more so that I think we have flawed. I mean, incredibly flawed. I mean, this is coming from me. Like my family's history is mired in the flaws in our country. So I'm no oligist for American history. But while it's flawed, I think we have one of the best arguments for constantly aiming to hold truth to power. And that's because we've structured. a system that ostensibly gives the people as much power as you might see in the modern world.

Starting point is 00:34:25 Now, that's probably more loaded despite the amount of caveats I tried to add here. But I think I preface what I'm about to say with that just because I think there's this view in crypto, like all governments are bunk. We've got to burn everything. Nothing will ever get done. I'm actually not that guy. And so for most people would think I'm like a cyberpunk, I may lose some bona fides with them. I genuinely think society has been like a pretty good improvement on the human condition.

Starting point is 00:34:47 And I think American society, despite its flaws, has been a pretty good upgrade in large part because we've had this strong respect for privacy rights and freedom of expression. And so right now, we do have a lot of people pushing back. There's a combination, there's confidence people that are objectively worried. The old world is changing on them. It seems crazy and novel. There's real criticism and concern. Like you've got a bunch of people flipping God knows what and people running around laughing at people to stay poor. Probably not a great look.

Starting point is 00:35:16 And there's a host of other things that really are causing anxieties about the rise of crypto. And I think that's translating into our policy bodies. But we're also starting to see like I think, I think Greg, you raised this, we're starting to see some of the politicians saying, all right, hold on, hold on. Maybe we don't have to have a knee jerk on this. Part of that's because crypto people are starting to wield their political influence. But part of it is because I think some of these folks like Ron White and other people were around for the dawn of the internet. And they said, look, this was really important to us. Not only did it help boost our economy, it significantly, you know, in large part, helped with our domestic and foreign policy, you know, spreading our foreign policy.

Starting point is 00:35:54 And I think in crypto, we're starting to see some people recognize the same things. And so this is a long-winded way of saying immediately in the near term, yeah, there's going to be a lot of friction, particularly on derivatives, lending, those types of things, because they are both the most disruptive to the traditional system and can bring the most gain to people, which means it can displace some of the traditional incumbents. But they do objectively represent some of the more dangerous aspects of things, too. Because as we've seen today, right, like if you take society general is now, you know, putting in assets to be collateralized on make. or doubt. It's huge. It's fantastic. It's like something that we've all been waiting to see for a while. Even as like a defy maximalist, love to see defy being able to be bridging to the real life. That said, you can imagine in the future where you've got that or something like that built on top of spell and then those things are being lent out on something like sushi's bento box and then

Starting point is 00:36:47 bento box is being used with cream. And somewhere downstream, something breaks and suddenly some pension fund is out $30 million because society general invested in something. Now this isn't to scare them off from their maker investment. That's not possible today. This is years in the making. But I think all of those things are now at the floor where people are saying, look, we've got to address this. But I'm optimistic that the long-term view is going to be a lot of pain. And ultimately, just like the internet, decentralized tech will not be stopped. And disruptive technology traditionally shapes or forces society to shape itself around it versus the other way around. So to me, this was always coming.

Starting point is 00:37:27 You know, in 2018, I moved my stuff from centralized exchanges. In 2019, I largely tried to stop using stable coins with more than the options. Now we've got decentralized options. I think people need to prepare for the next two to three years before people realize, hey, there's a world where, at least in America, I think America in particular, but generally across the world, we've got a unique governmental body that respects privacy rights, that respects freedom of expression. And this technology really helps to codify that. if we do it right, we can actually leverage it to continue to spread a lot of our ideals,

Starting point is 00:37:59 which is probably important in a time where, like, your position as a hegemon is consistently under assault. So I think it's a long-winded way of saying it's going to be painful in the short term, but I'm not pessimistic that truly decentralized protocols won't have a lasting position in American and global society long term. Okay. So, Greg, give your response. And also, let's bring up this geo-fencing issue because this is maybe some of the short-term pain that Collins mentioned. Yeah, no. And first, I want to echo what Collins said about the respect for privacy. I know the narrative over the course of the last couple of months, starting with the infrastructure bill. And Abe Sutherland has had a lot of really great thought leadership. He's put out about security. 5500 I, which is the subsection that treats crypto like cash for transaction reporting requirements and filing forms 8300 with the IRS for every transaction over $10,000.

Starting point is 00:39:05 Despite the fact that in the post-bank Secrecy Act environment, we do have what feels like a bit of a strangulation of financial privacy, which is, you know, one of the elements that that defy and crypto in general hopes to ensure for its users. But at the same time, the U.S. government does still have a great history of respecting individual privacy or at least aspiring to respect it. And even if we look at the way encryption is viewed around the globe, the U.S. is still a pretty darn good actor at respecting the right to encryption, which is in an information era, probably one of the most important rights we can have.

Starting point is 00:39:51 So I do want to echo that. I think that's a very great point. I think that Collins has talked about it recently. I know it's the tension that I usually point to most in trying to figure out how defy grows in America is when you have a regulatory system that's focused on intermediaries. not just because they're the best position to be regulated, but because they are regulated because they are in the best position to oversee and to bring order to a market. It is very difficult for a regulatory infrastructure

Starting point is 00:40:31 that has been built up over the course of, in some instances, basically a century, for it to move and adapt to a technology that, you know, seeks to build systems without intermediates. So we've seen, you know, regulation adapt, adapt rather, very quickly or reasonably quickly to the Internet. But this is another step beyond that. But it's also not a perfect step beyond that.

Starting point is 00:41:00 And it gets to the geo-blocking point is that defy doesn't exist in a vacuum. It is touched and entered, if you will, typically through interfaces that by definition are centrally managed. And I think that in the near term is where we likely see the most tension. If you're actually looking for an enforcement precedent that directly touched some element of defy, the best one to look at is the Coburn enforcement action for Ether Delta, where it was a decentralized exchange in the element that it had decentralized custody. The website never touched the assets themselves.

Starting point is 00:41:53 At the same time, it served as an interface, and it provided certain Oracle functions and helped facilitate the matching. The SEC entered into a settlement order with the founder of Ether Delta, the operator of Ether Delta, that basically identified. it as an ATS without identifying what the actual securities that were being transacted, but that's a separate gripe along the lines of the broker-dealer arguments. But there the SEC perhaps appropriately looked at, okay, there is a centralized portion of this that is controlled, that is administered, and even if the custodial portion is a

Starting point is 00:42:32 decentralized thing that we either shouldn't be regulating or that we don't really understand how best to regulate now, they can look at the interface and say, okay, we know pretty well how to regulate this. And so when we look at how DFI operates now, there's, again, varying gradations of how decentralized it actually is on the protocol level, whether or not there's still administration, whether or not there's effective control, how we consider governance tokens, how we consider multi-sigs. But there still are typically user interfaces, they aren't the only way to access these protocols, but for the normal retail user, you're going to go to a website that's controlled by a central party that serves as a gate

Starting point is 00:43:20 into this protocol. And the question really to me is when we're looking at, is there authority to regulate these interfaces, are they Verizon or are they Ether Delta? Is it an infrastructure that isn't providing a unique and important function that is one where you identify it, not just as a party that's capable of being regulated, but a party that should be regulated. Is it serving certain surveillance functions that you can't just get out of the transparent nature of a blockchain environment? So I think the interfaces are where we're going to see, you know, I don't want to say battlefront because I hope it would be more collaborative than antagonistic.

Starting point is 00:44:02 but I think that's where we're going to see most of the movement. I'm going to say something controversial. I'm so glad you raised that. Generally, this always surprises people when I say it. I actually think most of those types of plays probably should be. Like in the long run, where I would expect this to go is you've got bona fide decentralized protocols, your uniswops or whatever. Anyone can plug on top of it, just like anyone can plug on top of HGTPS or something else.

Starting point is 00:44:29 The second you start building a business on top of that is, when people are probably going to say, all right, well, maybe we are going to regulate you. And so the options are you either just become a business or you say, okay, look, we don't think we need to be a business to offer that same functionality. Instead, we think, like you said, there's maybe a variety of folks that can provide an interface, any of which is interchangeable, and the sole purpose of which is just to provide access to this underlying protocol. In that world, I think it's a better policy argument or a better policy discussion to be saying, all right, maybe all six people, all six of these people can't be in exchange for the same

Starting point is 00:45:04 protocol that this seems a bit strange. On the flip side, yes, if you're the only way that somebody can access a protocol, maybe you control back end storage such that if you disappear, people can't withdraw their funds or you have admin keys or keys that can, you know, take people's capital, you start to reintroduce the exact same reasons why we do have securities laws. You're becoming an intermediary. So for me, whenever I've talked to clients or something about that, and they've tried to ask them like, hey, what should I be thinking about when we're designing this? You know, I'm always earning the side of, hey, can you relinquish that control? Because if you don't, the more of this that you have, the more that you start to reintroduce the exact same reasons why we have the securities laws.

Starting point is 00:45:43 And that's what they mean when they say substance over form. So, and again, I feel like I'm on this podcast. I'm on Twitter, I'm like, ah, Gary. And here, I'm like, yeah, SEC. But that's not really it. To me, I think what one of our colleagues has said is probably the most important thing for, I think, true defy maxis to really appreciate, which is the SEC is probably the best motivator of making something truly decentralized. Like if you want the best securities law argument, you legitimately

Starting point is 00:46:09 have to be willing to say, look like, I don't get to own this entire stack. I don't get to own this entire experience. And unfortunately, a lot of devs, particularly Silicon Valley train devs, but other devs, they don't like that. They don't want to relinquish control. They want to be able to control the front end experience. They want to be able to consistently, you know, capture value from other revenue streams, but that's a business. Like, that's what running a business is. So I think in general, and we're starting to see this. So I think people are getting it.

Starting point is 00:46:35 We're going to start to see people who separate their protocol development teams versus some other type of commercial enterprise. That's the appropriate move in my mind. And I think the way that the SEC should kind of recognize that and maybe give a quid pro quo, say, okay, look, that's fine. And if the core issue that you all have had before that is, yes, but we think that maybe the people on the protocol side should be able to be incentivize with some of the assets that they've built without necessarily becoming some securities

Starting point is 00:47:00 intermediary, but also the commercial entity that's driving value should be able to appreciate that. Then there's a safe harbor path there in my mind that says, okay, look, to the extent of this protocol team is not doing X, Y, and Z and certain things are disclosed, we're not going to treat that as security, and we're not going to treat them as intermediaries. If you are going to do other things commercial entity, you may still have obligations, but I think that's one path to at least allow for this bifurcation of roles, but still allow for incentive alignment around the underlying protocol. Because at the end of the day, that's most people's issues with being able to separate

Starting point is 00:47:31 the business and the protocol is them saying, well, how do we incentivize ongoing devs who don't necessarily want to be building a business but may just be really interested in zero knowledge proofs or something like that? And I don't think we want to drive that innovation away. So we've got, you know, a path forward here. The other thing, Greg, that you mentioned, which is super interesting and something, hopefully, I think Laura's product is probably one of the better places to mention this is there is optimism that they, you know, there is optimism that they, you know,

Starting point is 00:47:55 do have a path forward to integrating technical data into disclosures versus traditional data. And I think the best example of that is there's a system, Laura, called the XBRL system. It's like extensible. I forget whatever the last three things are. It's not like, hey, it's not like, hey, Greg's laughing because it's not like they made a supercomputer. But for like a decade, the SEC basically worked on a standard because, you know, for 50, 60 years, we had all of these filings that were done on paper. And obviously computers got big.

Starting point is 00:48:22 And people, analysts in particular were like, hey, these disclosures are becoming less. helpful. You're sending us 150 pages. No one's going to read through all of this. We have computers now where a lot of this financial information and other disclosures can be standardized and made machine readable. Why don't you just make a standard and all the companies or anybody else should have to adhere to that? And then that way we no longer have to even look in different places. We don't have to have people come up with their own disclosures. That's what I would expect for crypto. Instead of saying, hey, all of these things are securities, we might say to Hester Persis's point, okay, look, you don't want it to be a security.

Starting point is 00:48:54 Here are the minimum things that we're going to require. And here are the things that are going to need to be surfacable in the smart contract with a standard API call. If you're not going to do that, then you don't get the benefit of the safe harbor. You can still argue it's not a security, but if you want the safe harbor, your API needs to surface some key things. Is there an admin key,

Starting point is 00:49:12 total supply, you know, inflation, whatever that is? That's, we have experience there. So I don't want us to continue to give the commission excuses like, oh, we have no idea what we're doing. They've got examples, and I like the commission for the good work that they do, but I do think we've got to start holding the fire under their feet to say, hold on, there are some paths here. That also means it's incumbent on us as an industry to come forward with some suggestions like this or some other things. But that's the other thing I did want to raise here. So I used to live a lot on Edgar because I would do a lot of registered product filings.

Starting point is 00:49:45 My dear paralegal Debbie Ferraro actually was one of the testers on Edgar when they first introduced it. And, you know, I think we would all have our frustrations with Edgar from time to time. And when XBRL was introduced, you know, within the last decade, probably about 70 years ago with the modernization movement for reporting filings, it was very clunky and hard to access. And really, the people who were taking advantage of it were quant funds that were pulling the data. because it's literally Excel coding of disclosure documents. But Collins is 100% right because the SEC maybe didn't have a product that was particularly useful when it was introduced, but they had to foresight to understand that data repositories are incredibly important and in the future they are going to be how we pull information

Starting point is 00:50:41 and there oftentimes are going to be how we regulate markets because it's easier to see the flat surface of the market and analyze it and pull it from a data. And the beauty of blockchain is it's particularly when you're looking at cryptocurrencies where everything exists on-chain, not calling off-chain resources. It is a complete set of information. And Collins is spot on. There are tools that can be applied to this industry to provide the type of surveillance and market integrity that we typically in the U.S. regulatory infrastructure look at those central intermediaries, whereas in blockchain, you know, you do have a transaction record either on layer one or in some instances on a transparent layer two, where you have the ability

Starting point is 00:51:35 to see the market. And to be frank, while we haven't seen this emerge quite as much in the SEC, FinC has been all over this. And the success of companies like elliptic and chain analysis is 100% driven by the same concept that you can regulate through data. You can investigate through data. You don't need Dragnet. The old Chicago sitcom, or I guess drama wasn't a sitcom, funny now. But you don't necessarily need that. You have new tools.

Starting point is 00:52:05 And these new tools are not just market opportunities. They're also regulatory opportunities. Yeah. Well, so I have to say I'm a little bit surprised that this is actually the direction you guys went when I asked you about regulation of defy, because the way that I'm viewing this is that the regulators want to keep imposing that system where intermediaries are, you know, a big part and have a big role and that that's who the regulators then regulate. And I actually feel like watching this that they are kind of painting a broad brush and often,

Starting point is 00:52:43 lumping together projects that truly either want to decentralize or actually already are decentralized, along with ones that either are centralized or just plain fraudulent. And I also feel, even earlier when you guys were talking about how the U.S. tends to respect privacy, you know, a lot of, like for instance, we saw with the infrastructure bill, the crypto provision really was going to create a lot of honeypots for hackers who were interested in you know, who is transacting in cryptocurrency. So in that regard, like, you know, I didn't feel that that, I mean, granted, I recognize that a lot of Congress people do see the need to change the language in that bill. But so the fact that it came out that way and that there was a strong

Starting point is 00:53:30 push to regulate in that fashion does indicate that there's, you know, a substantial segment of government that maybe doesn't really see the merits of decentralization or just doesn't believe that something can truly be decentralized. And so even, you know, I keep, I, you guys keep referencing a commissioner of purses, um, safe harbor proposal. And, you know, I think for somebody who looks at this space and says, okay, there are projects that are legitimately trying to be decentralized or are already decentralized. And of course, something like what she proposed makes sense. But, you know, we haven't really seen the SEC take that up seriously, right? I mean, the fact that she's revised. It is great for her and for everybody who thinks about the space. But when you look

Starting point is 00:54:16 at Chair Gensler and kind of some of the other commissioners or even over the CFTC, we don't necessarily see a lot of people saying, oh, yes, this is the way to go. Let's figure out how to adopt this. You know, let's get this in the pipeline. So I'm just curious, you know, am I just reading things wrong or do you feel like maybe because you want it to look that way that you're maybe painting a goes to your picture or is it just that I'm looking to you short term or what? No, no, I think you're right. And that's part of what I was saying. You know, I think the next two to three years, it's going to be a combination of a struggle

Starting point is 00:54:51 and convincing folks, but also some pushback because, yeah, you're right. There's a broad brush here being painted. And for a while, I think a lot of the industry engage in probably a bit more good faith than was appropriate. Not, not, I mean, you should never engage in bad faith. but I think I guess we assumed too much benevolence and interest on behalf of the government. And it's not that I don't think they're not interested so much as at first it's like, hey, this crypto thing. Yeah, these people want to make a bunch of money.

Starting point is 00:55:20 Then it became a serious thing and they still treated it that way. And then instead of ever engaging, it went from, hey, this isn't serious to you're going to destroy the financial system and your criminals. And so it's like, well, hold on. How did it go from this is a joke to her criminals? But yeah, you're right. right now I think there's definitely more of a contingent. I'd say, I don't know, this is not a scientific number, you know, 70, 30, 75, 25, saying, oh, yes, you know, this is just inherently problematic. We need to reintroduce intermediaries. That's the way we protect people, et cetera. But like I said,

Starting point is 00:55:51 you know, even six months ago, we didn't have as many of the folks in Congress actively talking about it as we did. We basically had, I think it was, I hate referring to all these people by first name. I can know them. But I think it was like Cynthia, Lummus. Llamis. There we go. Cynthia and a few of the other senators, which I only know by first name. I have no idea why.

Starting point is 00:56:12 And so as we start to see that roll out, one of the interesting things I've talked about, and it's obviously not a politics show, but I've talked a lot about with my friends is I am very interested to see if there's a political realignment that occurs here, because I've long suspected that certain crypto people are definitely single-issue voters,

Starting point is 00:56:30 and we're starting to see that, you know, come out in some of the political expressions, but CT is also, you know, much of an echo chamber. So I think it'll be interesting to see in these next, you know, midterm elections, how much pandering there is to this group and also how much that translates into political activity. But I think if it does translate into something, you'll see a sea change almost overnight, as we saw with some of the infrastructure bills. But now you're not crazy at all. One last thing I wanted to add on this is that I feel like another trend that I'm seeing is that

Starting point is 00:57:03 a lot of the pro-crypto regulators are just leaving government and going to join different crypto companies. And I mean, like, it's almost like just looking at the A16C crypto regulatory team is like all these ex-regulators and, you know, other people who have spent a lot of time in D.C. And then the people that are kind of negative on crypto, they're the ones who are staying in the regulator roles. So that's another trend that for me is kind of fascinating to watch. And I'm a little bit like, oh, where is this going to go? You know, because all the people who've left and now work in the industry are saying, hey, we need new regulations and the old regulations don't apply here and stuff like that.

Starting point is 00:57:45 And then the people who are still in UC are like the, you know, the 33 and 34 acts do apply here. And, you know, the Howie Test and Reeves do apply here. So anyway, it was just an interesting observation. So the last, Laura, just one last point on that is I think, you know, there's an importance to the crypto communities, and I don't think there's a singular community, obviously, but the crypto communities to come together, whether it's collectively or in their own little segments, and understand that narrative matters. It's not just building a better product, and it's not just donating money, and it's not just being active on

Starting point is 00:58:30 Twitter. A meme game is important, but that's not what's going to drive things. It's about creating the narrative on the policy level that makes people remember that it's not simply politically expedient to crack down, but that there's a long-term vision for the benefit that this industry can provide the U.S. and the world community at large. And that's a different. And that's a difficult task. It's tough to build up a narrative. It's not something that isn't happening, though. We've seen people shift when they see the opportunity. And I go back to, and some would probably laugh at me at saying this, but 2013 and 2014, I recall when Ben Loski at DFS first addressed crypto in probably the late summer of 2013, he wanted to crush it because all he had done,

Starting point is 00:59:30 was read, you know, stories about Silk Road. And three weeks later, you know, he, after actually investigating it, you know, you can have your opinion on the bit license and have that turned out. But I do think he genuinely said, I want to build a framework to actually build responsible innovation in New York for crypto. It didn't turn out that way. As a native New Yorker, I still can't access a lot of services because they can't get into the state. But it is reflective of the fact that with the appropriate view, he viewed it as an economic builder for New York and wanting to build the right way. We should be working on the narrative. That story is also a nice reminder that the narrative is not the only thing.

Starting point is 01:00:19 We also need the proper regulation or legislation. Yeah. Well, one thing that that actually reminds me of is that a lot of. lot of people say that that bit license was kind of too early, right? That the technology and the industry hadn't really developed enough to truly understand what even should be regulated or how the space was going to look. And, you know, what's been interesting covering this the last few years is that the industry has complained a lot about not having clarity. And yet at the same time, I think in a way that that has given the industry a little bit of freedom. I understand it's a scary

Starting point is 01:00:54 kind of freedom. But if you think about how Ethereum basically had an ICO, but then decentralized by the time the regulators were paying attention. And so at that point, they, you know, kind of realized, okay, yeah, this is not a security anymore. I wonder, you know, so I don't know how long it's going to take for more clarity to come clearly. I think we all agree on this episode that the regulators are working on something and we probably are going to see more actions coming out of these regulators. But during that time, it's like you said, maybe this just gives motivation to more projects to decentralize and do it quickly. Because if that's the case, then I think a lot of them could kind of end up like Ethereum in the sense that, you know, as long as they decentralized by the

Starting point is 01:01:42 time regulators really come in, then it may be the case that regulators won't be able to do much. But I don't know. What are your thoughts on that? Yeah, I think the timing is obviously extraordinarily important. I think you're right that I would argue perhaps timing on the Bit license in particular was perhaps not a question of 2014 versus 2018 versus 2021, but more so that the timing and the application of that type of a regulatory regime to companies that were six months old versus companies that were well-financed, you know, well-established, well-capitalized financial institutions. You know, if you had, for example, a large regulatory framework in place for people developing silicon processors,

Starting point is 01:02:35 we wouldn't have Hewlett-Packard because you can't easily develop a financial institution in a garage. But frankly, that's kind of how crypto companies got their start. It was a couple of people and a little bit of seed funding. All right. So for this next year, what are you going to be looking for? And why don't we just throw into this last question what you think is going to happen to the stable coins too? Stable coins are a good place to start. I think there was an article today, again, when we're recording from the journal talking about how FSOC and the Biden administration are looking to create a regulatory framework.

Starting point is 01:03:19 for stable coins. I think quite clearly this is an area where there's going to be a lot of focus in the next year. And it's, you know, Collins mentioned earlier in the show, there obviously are a bunch of different types of stable coins. But if we look at, in particular, the fiat-backed or in some cases not quite fiat-backed stable coins, you know, that's going to be an area of significant focus and potentially a near-term regulation, probably not legislation, but probably regulation. And I think we'll see some clarity. I think we've already seen people address the Investment Company Act issues in the space where, you know, USDC is now going to only hold fiat and treasuries. And that's Paxos's strategy. I would guess that's probably Gemini's

Starting point is 01:04:16 strategy and its most decisively not tether's strategy. I think we could see some action on that side. And that's when we're hearing people talk about money market funds. That's what we see. I think we could, if we get significant regulation on the securities law side, rather than on the bank reg side for stable coins, I think one project that'll be interesting for people to look at is R-coin, a R-Coyn, which was done by the folks at California at ARCA, ARCA Labs, where they actually registered a money market fund that holds its shares entirely on the Ethereum blockchain, and you actually can transfer these money market shares peer-to-peer to whitelisted Ethereum network addresses. This is probably the biggest product that no one actually talks about

Starting point is 01:05:10 because it doesn't have market traction, but it's real thought leadership as far as developing something and getting the SEC on board with an actual tokenized product, registered product that really does live on a blockchain. And you could see

Starting point is 01:05:27 some circumstance where that becomes the not quite where stable coins go, but if we do see a lot of attack on the securities law front on these centralized stable coin issuers. I think R-coin is something that might get talked about a little bit more.

Starting point is 01:05:48 Yeah, that's actually interesting. I didn't know that I'd registered the money market shares on chain. Yeah, for me, I think, you know, the next year I'm looking at a confluence of, I think, a segregation between kind of these truly decentralized protocols, whether that's, you know, because they are protocols and made by folks that are known or anonymous or pseudonymous developers, kind of building primis. and or potentially taking over previously centralized ones. To me, that's actually the worst result from the regulators' perspective

Starting point is 01:06:18 because then it may just push things into the shadows. But that's definitely something in a trend that I'm expecting to see, particularly because DAO's are starting to get back into popularity, which personally I find very interesting because it's like everyone tends to forget that the SEC started their entire crusade with the Dow report. So I personally, like in terms of like the idea behind DAO's, I love them. Like, I think people should be doing it.

Starting point is 01:06:42 I've been doing a research on co-op models and the like. But I think it is very weird that everyone is acting as though like the SEC's not about to show up next year with all of these Dow's. Because to be honest, that's the thing that seems the most obvious to me, like even more so than stable coins and stuff. Only because for years, basically that was like their demarcation line. It was like, okay, we gave you the Dow report and everything after this, like, you're not necessarily blessed or grandfathered in, but we're not going to focus on you as much. And then it's like three or four years later, everyone was like, okay, it's been a while. Why don't we just start doing Dallas again? So I think that's probably the area where we'll probably see a lot more activity.

Starting point is 01:07:19 What's interesting is I think what will also bring them into the four is I'm expecting one of the first, if not more than one, major political dows to become relevant. So I think that's going to end up kind of like, kind of smashing into each other. And it's going to be one of the major securities law issues to see next year. And then in terms of stable coins, yeah, I mean, I think there's going to be a lot of focus here. For me personally, I've had kind of a laser focused on things like LUSD, Rye, and UST for the past, you know, almost a year and a half since ESD kind of empty set dollar of one of the first algorithmic stablecoin experiments kind of kicked off the imagination of the industry to see if it could be done. And I think long term, that's kind of important. I maybe undermine my prior rant in terms of like American hegemian and the like. But being frank, if you're trying to use a global permissionless network, at least if I'm not American, I don't want to have to rely on something that's subject to like another country's random domestic and foreign policy wouldn't leave me feeling great.

Starting point is 01:08:17 It's like as an American, it's great if like everyone's, you know, denominated in USC. But long term, if you're saying, hey, we're building this network that's almost a layer on top of the real world that everyone should have access to, you probably want a credibly neutral, stable currency that, you know, not only should not be. the U.S. dollar, you also probably shouldn't be backed by it or pegged to it maybe isn't necessarily as problematic. But if you're backed by it or you're targeting it, you're always necessarily susceptible to it. So, well, I think what's interesting right now is the U.S. is actually focused more on curtailing it. At some point, I wouldn't be surprised if we actually flip on that. And instead, we try to make it such that only U.S. dollar denominated stablecoin things get priority. I just, you know, and this is less me as like the crypto anarchist lawyer,

Starting point is 01:09:09 but more like if I'm going to be a real politic like citizen of the world and we still live in the nation state system, then yeah, if my government's going to like be in this great power war, I want them to kind of do it right. And so for me, I would expect at some point somebody says, hey guys, this is spreading our foreign policy with very little expenditure on our part and very little liability if it goes wrong. Why don't we kind of let's see what happens? I'm not don't just unleash the US dollar on the rest of the world as a weapon, but admittedly, we've kind of done that before. So it's one of those things where it's like, I don't approve of it from the humanitarian view, but if you're going to do it, I would expect at some point somebody's going to be a

Starting point is 01:09:48 realist and say, hold on, if we're going to allow this, why don't we allow it in the way that best benefits us? So I think stable coins are going to be interesting. There's going to be a crackdown, but I wouldn't be, like I said, I wouldn't be surprised if it gets interesting. Yeah, and Collins, on that point, I mean, I think it's also not if we're going to allow it, if we accept that this is going to happen in some form, why would you not want to have the dollarization of crypto? If you're a policymaker, and this goes to the narratives, it's built in. And as it turns out, you know, depending on votes in the next couple of weeks, we're going to need some people buying some U.S. treasuries. So, yeah, it's utterly bizarre to me.

Starting point is 01:10:29 And like I said, I get it if you're like one of the people that don't have the economic perspective, that dollar hegemony is good. But as a general matter, our policymakers do have that perspective. So for me, it's a bizarre situation to say, okay, our standard, you know, way of operation is, yes, we want the dollar to generally dominate in every market it possibly can. Here's an emerging financial market that may grow to dominate all financial markets. let's do our damned is to stop the dollar from predominating when it has no competition. I've never, and I understand what's happening. It's really just like the policymakers aren't, you know, engaged with the regulators right now because it's not a priority. But it would be a shame if we do lose out and the nation state system persist.

Starting point is 01:11:11 And it's just another nation that has the hegemony because then it's like, well, great, we didn't undermine the hegemonic system. We just gave it away to someone else. Yeah, particularly because the bank run concept, I mean, if you're talking about state, stable coins that have reserves that are held in regulated financial institutions, whether in deposit or custody accounts, and you're looking at treasuries as the rest of the portfolio. You know, if we're worried about the systemic risk of a run on USDC, we have a lot bigger problems with the existing, existing rails. Yeah, the other thing I just, Laura, just wanted to correcting myself earlier, R-coin is actually an interval fund, not a money market fund. But his valuation in holdings is very similar to a money market fund. So just wanted to correct that.

Starting point is 01:11:58 Okay. Thanks. Yeah. Going back to Collins' point about the dollar. So a couple of things. I don't know if you guys saw, but Sam Bankman Freed of FTX did write a long Twitter thread about this and was saying that the fact that the U.S. dollar is how, like,

Starting point is 01:12:17 pretty much the vast majority of trading peers around the world are traded in crypto. that is to the U.S.'s benefit. And Chris John Carly, the former CFTC chair, has said that he thinks, instead of doing a CBDC, we should just have multiple competing U.S. dollar stable coins, and it just kind of let it be sort of a free market. But the last thing about this, I don't know if you guys have been following Rohan Gray, who... I know he's a controversial figure in crypto. So I don't remember his exact title, but it's something like assistant professor of law at, I think it's Lammett, maybe. Willamette?

Starting point is 01:12:57 Willamette. Yeah. Yeah. And he said, you know, the risk is that the U.S. government then kind of loses control over its money, basically. So, you know, just wanted to offer the other perspective. But you guys, we are overtime. We have, and it's funny because we only really touched on like a few major topics, but there's just so much to discuss. here. So it was super fun. I am so glad we pulled this together. And it's amazing how much there

Starting point is 01:13:26 was to discuss, given that there wasn't any big regulatory news this week. But we all know it's coming. So thank you so much for discussing all of this with me. Where can people learn more about each of you and your work? I'm on Twitter. That's probably the best avenue for me, which I never thought I'd be saying in my life. And what's your handle? Just my name, Collins, underscore Belton, very creative. It's a well-known lawyer creative class. Yeah, and for me, I've got one of those lucky names where I actually typically am able to get the social media user account

Starting point is 01:14:04 that just is my last name, and you've got to figure out how to spell it yourself. No, it's X-E-T-H-A-L-S on Twitter, and multi-coin.competal is our website. Okay, perfect. All right. Well, this is so much fun. Thank you. Both so much for coming on Unchained. Thank you again, Laura. Appreciate it.

Starting point is 01:14:23 Thanks. Thanks so much for joining us today. To learn more about Collins and Greg, check out the show notes for this episode. Unchained is produced by me, Laura Shin, without from Anthony Yoon, Daniel Ness, and Mark Murdoch.

Starting point is 01:14:34 Thanks for listening.

Unchained - How the Greatest Decentralizing Force for Crypto Projects Is the SEC - Ep.278

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