Unchained - How the U.S. Government Can Protect the Dollar Through Stablecoins - Ep. 655

Episode Date: June 4, 2024

In this episode, Laura Shin speaks with former CFTC chairman Chris Giancarlo and former CFTC chief innovation officer Daniel Gorfine on the pressing need for the U.S. to safeguard the dollar. They explain why they believe the future of regulation is the government operating nodes on blockchains rather than regulating intermediaries, why even private USD stablecoins will want a USD central bank digital currency, and how China might export the technology behind the digital yuan—and its surveillance capabilities—to other countries. They also touch on how the upcoming U.S. elections could influence crypto policy, why stablecoins are more than just trading instruments, and what the U.S. must do to maintain its financial leadership. Show highlights: How governments should embrace blockchain technology to become better at its job, according to Chris How the financial system needs to change for the younger generations Whether the U.S. is losing ground in terms of innovation Why Daniel thinks stablecoins are much more than a trading instrument for crypto Why Daniel believes that the U.S. is making the regulation of stablecoins “far more complicated than it needs to be” How Singapore is already giving licenses to USD stablecoin issuers Whether the dollar should be trademarked to protect it How Tether has become one of the most profitable companies per employee in history without being under U.S. jurisdiction Who should be the next chair of the SEC and the need to regulate DeFi in order for it to become mainstream Why Daniel thinks that some of the criticism of the FIT21 bill “doesn’t hold water” Why Chris believes that China is lying about not intending to export the technology behind the digital yuan Whether algorithmic stablecoins should be banned, as proposed in the Lummis-Gillibrand bill Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com First Bits + Bips episode: Bits + Bips: Does Macroeconomics Point to a Potential Crypto Supercycle? Thank you to our sponsors! Polkadot VaultCraft Guests: Chris Giancarlo, Former Chairman of the US Commodity Futures Trading Commission, author of CryptoDad Forbes: ‘Elizabeth Warren’s Anti-Crypto Wing Is A Shrinking Iceberg’, Says Former Top Regulator FoxBusiness Interview: Elizabeth Warren and others have declared war on cryptocurrency: Chris Giancarlo Op-ed in the FT Banking Risk & Regulation: Can CBDCs be made safe for democracy? Daniel Gorfine, Founder & CEO of boutique advisory firm Gattaca Horizons, former Chief Innovation Officer at the U.S. CFTC, and adjunct professor at the Georgetown University Law Center Opinion: Stablecoin and other digital assets are falsely framed as a choice between personal privacy and national security. We can have both. - MarketWatch Building digital infrastructure for the future of finance Links Stablecoins: Stablecoins Are Defense Tech by Morgan Beller  Unchained:  Opinion: Regulated Dollar Stablecoins Created by a Proposed New Senate Bill Would be Crypto’s Ultimate Trojan Horse  Tether's Record $4.5 Billion Q1 Profit Highlights Its Dominance of the Stablecoin Industry SAB 121 Unchained: President Biden Vetoes SAB121 Repeal FIT21 Unchained: FIT21 Bill Heads to The Senate: Should We Really Be Excited? Spot Ether ETFs Unchained: Analysts Up Odds of Spot Ether ETF to 75% as Prometheum Launches Product That Treats ETH as a Security Learn more about your ad choices. Visit megaphone.fm/adchoices

We've got to recognize this as a new technology for how we finance our economy, how we enable people to store value for their retirement. We need to come up with new systems for it. And so we've got to move forward. And what I would say to people are left and the right, we have a lot of common ground here to get right. Let's get the rules in place. Let's get forward-looking people in place.

Let's get on with the job. Hi, everyone. Welcome to Unchained. high resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started coming crypto nine years ago and as a senior editor at Forbes was the first Main Tree Meterporter to cover cryptocurrency full-time. This is the June 4th, 2024 episode of Unchained. Deploy custom crypto strategies and boost your yield with perpetual options on VaultCraft, the universal defy adapter for supercharging your crypto. With version V1.5, users can now earn options on optimism and

arbitram while also rebalancing multi-strategie yield products all-in-one vault. Learn more on vaultcraft.io. Pocodot is the original and leading layer zero blockchain with over 2,000 plus developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem, making it faster, more secure, and adaptable. Perfect for GameFi and DFI to build, grow, and scale. Join the community at Pocodot.network slash ecosystem slash community. The scorebed app here with trusted stats and real-time sports news.

Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or... The score bet.

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Conditions apply. Today's topic is stable coins and all things regulation and geopolitics and beyond. Here to discuss are Chris John Carlo, former chairman of the CFTC, an author of Cryptodad, and Daniel Ghorfine, founder and CEO of Gattaca Horizons and former chief innovation officer at the CFTC. Welcome, Chris and Daniel. It's great to be with you, Laura. Yeah, great to be on. Hey, everyone. Just wanted to jump in with a quick note before my first question to say that even though this show is primarily about stable coins, we do reference the SCB-121 votes and recorded before President Biden vetoed its repeal. For more in that, you can

listen to my interview with Senator Cynthia Lemmiss. Even though we didn't discuss the veto, Chris did send a statement that Daniel agreed with. He wrote, quote, Biden's veto of Congress's SAB 121 repeal reflects aged, hidebound thinking and reactionary, not progressive public policy. It is an outlier in the world's rapid adoption of digital financial networks and unbecoming of America's proud tradition of innovation and advancement. And with that, enjoy the show. It's such an interesting time to have you both on because we're coming, you know, into this episode after having just passed through a few momentous weeks. We had the repeal of SAB 121, or the vote to repeal SEB 121, which passed, you know,

both chambers of Congress. We had the last minute about face on ETH ETF approvals. We had the fit 21 vote in which 71 Democrats crossed party lines to vote for the bill. in the House. And just this week, we got news that the Biden campaign has been reaching out to people in the crypto industry. So I would say if you add all this up, we have seen a sea change in Washington generally, because also there are suddenly these pro-crypto statements from Trump as well. But even more kind of markedly, I would say, from the Democrats. So how do you see all of this activity affecting stablecoins, which I know is kind of your area of expertise, in particular the potential for stable coin legislation or even a potential CBDC.

And Chris, why don't we start with you so people can differentiate your voices? Sure. It's great. Again, it's great to be with you, Laura. And, you know, there's so much in this sea change that comes after, what is it, eight, ten, twelve years of this innovation moving forward. It's funny how long sometimes it takes for the ground swell to build up and then things happen suddenly. Sometimes it takes a long time and then the change is sudden. I think before maybe covering the events of the last few weeks, which we have a good amount of time today to do, it's worth sort of going back a little bit and talking about this innovation more broadly. And, you know, everybody has their own origin story.

And in the crypto world, we call it falling down the rabbit hole. You know, the interesting thing about that reference to the rabbit hole, it's a reference to Lewis Carroll's Alice in Wonderland. And, you know, Alice didn't just trip over a sod of grass and fall down the hole. She was actually chasing something. She was chasing the white rabbit. And we're all, we all come to crypto by pursuing that white rabbit. And in Daniels, in my case, a lot of it was in perhaps an unexpected area.

We were exploring how government and regulators can use this technology. You know, my world prior to crypto was over-the-counter swaps and the derivatives markets. I built a company on Wall Street or helped build a company on Wall Street called GFI Group, which we took public and which by the time of the 2008, financial crisis oversaw about 80% of the world's credit default swaps market. And when that crisis hit, the market opacity, the inability to fully understand the magnitude of one bank's exposure to another bank through the holding of credit default swaps led to an expectation that the amount of default protection written against a failure Lehman Brothers

was over 400 billion. Well, we now know that the actual amount was less than $8 billion, but we believed it was $400 billion, and because we believed that, we felt that we had to come up with the TARP program to flood Wall Street with trillions of dollars to prevent those kind of defaults. We could not do the type of what I call financial cartography

to understand all of those exposures. And in the wake of the crisis, as Bitcoin and the Bitcoin white paper emerged, I saw that as a tremendous opportunity to be able to actually map the full range of exposures of financial institutions, the type of mapping that regulators like the CFTC and the Federal Reserve could not do during the crisis.

And so when I arrived on the scene at the CFTC and was able to create lab CFTC in January of 2017 and quickly was able to be introduced to Daniel and appoint him to head that, we saw that as an opportunity to really explore the full range of this new technology, not only for what it can do for markets and for tokenization of real-world assets, transformation of the financial service system, a brand-new architecture of finance, an internet network-based architecture of finance. we also said, but this could be a solution for government's inability.

And the reason I mention all that is that what's, I think, a little bit lost in a lot of the hurrahs, which I share in for the sea change that's taken place this week, there still hasn't yet dawned on our successors in office. That this is not only a technology that's going to enable faster, more efficient financial markets, broader, more inclusive. more direct access to finance, but it's also going to allow regulators to do a far better job at their work. And why do I say that? Because for finally, they're not going to be totally reliant on intermediaries to report to them at what's going on. They're going to be actually able to be nodes in blockchain to actually see activity and move away from entity-based regulation to activity-based regulation.

And hopefully that should be able to come with the right elements of privacy for market participants. Regulators can now monitor flows of transactions suit anonymously and only when this probable cause through our standard constitutional means, unmask that and do their job that they're constitutionally bound to do to prevent fraud and manipulation in market. So this is a tremendous opportunity. It's a new architecture. And we will spend time later on talking about all the changes of the last week.

But I think the one piece of the iceberg that yet needs to crack is regulators to move on from, okay, grudgingly, we need to approve the ETF. Grudgingly, we need to lose to say, no, no, no, no, don't be grudging about this. Embrace this because this is eventually going to make you a much better regulatory and do your job that all of us that believe in markets expect regulators to do. You know, well-regulated markets are the best markets in the world. We need regulators to stop making value judgments and actually embrace this innovation to do their job better. And just from any conversations you've had in Washington,

do you know if you're seeing that change in attitude? I think it's coming slowly. I would say that I think, and I don't want to pat ourselves on back, because I think of the work that Daniel and I did in creating Lab CFTC, and the fact that the fit for the 21st Century Act is actually going to bring back Lab CFTC, not only in name, but as we structured it, I do think that our colleagues at the CFTC and Chairman Benham and the commissioners there seek this technology as an opportunity to improve their work. But I still think more needs to be done certainly in the congressional side in that area. Yeah, no, and I would just jump in and reinforce some of the points that Chris was just making. I mean, I think what's very clear is that a lot of this innovation is about infrastructure and plumbing of our financial markets and our financial services system. One of the things that became very clear to me during my time at the CFDC and even in the years after is that a lot of legacy financial services, firms and institutions have kind of scotch taped and bubblegum together, their back-end systems, their databases, those accounts, based systems that don't communicate with each other even within the same entity. And that kind of gets

to Chris's point about the challenges that can actually create on the regulatory side. I mean, if within an institution, they have difficulty communicating between ledgers effectively, then imagine what that reporting looks like to regulators and the transparency of that system. So I think what's become very clear to me is that when we talk about tokenization in blockchains, we're basically talking about rails, having more interoperable, transparent rails. And when you talk about tokenization, you're creating these digital bearer instruments in cyberspace. And we talk about how that allows you to tokenize all types of financial assets and instruments and transact them, you know, regardless of time and space. In some ways, you know, I like to go back to thinking thousands of years ago, the most efficient way to transact would be maybe Chris hands me a shell.

and I gave him some barley. And that settled instantaneously, right? That shell was the token. And that's a very efficient way to transact. It's real time. There's no costs associated with it. It settles, you know, as I said right away, there's no counterparty risk.

As the world got more complicated, we started to trade across space and time, which required these kind of trusted intermediaries that started developing their accounts, their ledgers and their little books to be able to track the transaction and create trust in the system. what we're talking about now is bringing back some of what was really efficient about the

direct, you know, face-to-face transaction, but we're doing it in a digital space. And so to me, that infrastructure play is so critical. And to Chris's point, can actually enhance well-regulated markets. It can enhance transparency. It can decrease counterparty risk. You don't have the AIG problem of not understanding what kind of risk that they've taken on in a particular concept. context. So, you know, I've reinforced that point. In terms of what's happened recently, I thought it was, you pointed out some of the politics around, you know, Fit 21 in the fact that it was, it was far more bipartisan, I think, than folks expected. You know, some of the Democratic members commented that this is a generational topic. It's not one that should get lost. And I kind of

compliment Chris as the original crypto dad in recognizing that. You know, I think people who are digital first, understand that there's just better build. There's better infrastructure. You wouldn't use the clunky, I'm going to use like, what was it, Lotus 1, 2, 3 database system from 40, was that a thing? Lotus 1, did I get that right? You know, that was maybe 30 years ago, the type of systems that we were building, and you wouldn't do that today. You would have interoperable, more automated efficient systems, and I think that's what this all represents. Yeah. And the generational point is a good one. because I agree with Daniel.

This has been less about political party than this is about and about generations. A generation that grew up in the analog world of branch banking and paper checks, where we have to admit, the dollar was king. US central bank was the central bank of the world. The U.S. commercial banks bestrode the globe like giants, moving money around the globe. and U.S. forms of financial regulation were the dominant forms and copied around the world. So people that grew up in that world say, well, what's wrong with that world? They see a new technology coming around and, you know, they either perceive it as something that's incomprehensible or slightly fraudulent or they perceive it as a threat to that system

that they grew up in. But a younger generation, they grew up in a networked world, especially young people that grew up video gaming and trading suits of armor and tokens and playing with players around the world are coming to this world with the assumptions that why shouldn't it be networked? Why should value be siloed on the balance sheet of one commercial institution that's here today but could be gone tomorrow? Yes. Unlike the internet, which has been here 40 years and hasn't gone away yet and get stronger

with every PC that comes online. So there is a generational aspect to this, and that's what's interesting in the last couple of weeks. I think that both a political air gap, what I perceive has happened is as the left wing of the Democrat Party started talking about anti-crypto armies and a war on crypto. I think that created an air. and other members of the party were relatively silent,

I think that created an air gap that the other party stepped into. You know, politics is a game of competition. One side seats an advantage. They jump into it. And I think that people are, crypto advocates have been speaking to Trump administration, encouraged him to speak out. And I think that created a sense that this could be a campaign issue.

And I think that led to a change. I don't see that as, I see it as a, you know, in military terms as sort of a tactical movement on the battlefield. It doesn't indicate what the longer term impact. But politics are important because I'm not sure we would have seen an ETH-EF approval had not the actions of the last three weeks take place. So those political moves are important and they do have longer-term implications. You know, more broadly, as Daniel and I have said, in the longer term, you know, you don't, society has never been able to successfully stop innovation globally. There are instances of history of one society saying no to a technology, but the rest of the world moves on and eventually they have to catch up.

The worry here in the United States was, was the United States might be that laggard and the rest of the world would get ahead. I will say one other thing. To me, the big implication, the longer term implication of the last three weeks is this. The mantra that was going around for the last two years that said same activity, same regulation, I think that's over now. In the same way that in the 19th century, we got around by rail transportation, in the 20th century, we moved to airplanes. but we didn't use railroad signals to direct airplanes. We came up with a whole degree of aeronautic rules for how airplanes operate. They're both transportation, but they're different technologies requiring different rules.

The fact of the matter is this is a new technology. It requires same principles. Principles, yes, disclosure, licensing, et cetera, but we're going to need new rules. And I think the notion that we could have operated under the old rules for this new technology, to me, that's the big implication of the last three weeks. I think anybody that continues to say, we're not going to change any of the securities rules. We're not going to change it. You know, we adapted our rules at the CFTC for Bitcoin futures. We came up with a system we called heightened scrutiny.

It works. It's working today. It's been extended from Bitcoin futures to ETF futures. ETH futures. So it can be done. And I think the notion that we can use the same rules for this new technology in my mind, that's come to an end now. Congress has said there was going to be new rules.

We just need to get it through the Senate, but it's going to happen. Yeah. Well, we'll see how that plays out. One thing before I asked my next question is, Daniel, I love what you said about the shell. I have two cowrie shells right here at my computer. somebody can you guys see yeah absolutely yeah or i should put them this way i guess um somebody uh gave these to me i think for like a a talk that i gave or something like that because these were

widely used for um currency and so sometimes people say to me oh but you know the u s dollar has the full faith and force of the u.s government and i'm like yeah okay whatever like it doesn't matter because before that it was the British pound and before that it was, you know, the French Frank or whatever. And then before that it was calorie shells. So like why, why is that some special magic sauce? It doesn't mean anything. But one thing that I did want to say too about the, you know, just watching this play out in, you know, in my role is, you know, it feels like it's very similar to seeing, you know, blockbuster facing, you know, streaming. But in this case, it's actually the U.S. government is blockbuster. And as an American, I'm just like, oh, gosh, like, okay, so maybe we won't be the leaders in the next big technology. But, you know, it's not like a fun feeling to be watching your own country really screw themselves over.

But speaking of that, I do feel like stable coins are perhaps a good way for the U.S. to cement the the dominance that they already have with the U.S. dollars. So could you talk a little bit about how you expect or how you would like to see that play out? You know, there's so many different variations on this from obviously central bank digital currencies, which is the direction that a country like China is going. We don't have a number of private stable coins. You know, there's some different bills in the works. But, you know, what is your ideal way to see this happen?

So let me just say it to your last point about where the U.S. government is, is look, I appreciate from a regulatory perspective and from a policy perspective, there are a lot of fears about change, right? And many are warranted saying, like, look, we've created rule sets that are focused on these traditional financial intermediaries. And if that's changing and the way that financial services proceeds is changing, how in the world do we address that? How do we make sure that our rules are fit for purpose?

So quite honestly, it does require a lot of work on the side of the government, as well to figure out how to adapt. So you can understand why the knee-jerk reaction sometimes is just to say, want to say no, because we want to say, like, we figured it out for the last 80 years. Why can't we continue to just do that? I'm going to let you come to stablecoins, but can I just pick up on what you just said? I think there's an area where the United States is already going to lose leadership, and that's in the area of digital asset disclosure. You know, in the area of analog security disclosure, we led the world with the 1933 Act, 34 Act. Then we developed standards for disclosure that were around for decades before Europe even put into effect a disclosure regime modeled on

the U.S. This time around, because of their mica legislation, the European countries right now, are now developing their disclosure standards for digital assets at a time when the United States is just, you know, we don't, nobody even knows what to do, right? Because how do you, follow existing disclosure for securities, list where your location is, list, you know, where your officers are for a digital asset. Europe is coming out with customized disclosure for digital assets. Once they've got that in a place, now they're going to have set the standard by which when we ever get our act together in a few years, everybody's going to look to that for a

starting point. They're going to say, well, we're already disclosing this under Micah. So there is a real risk of the U.S. being late to this. Standards get set and they get set in other jurisdiction. Now, may Europe may come up with a great system. We all may say, thank you, EU. This is fabulous. But we're not playing a role in influencing it. So that's a lost opportunity, I think, that's happening today because of our slowness on this. But anyway, I know your question is about StableCoy. No, but I'll tie it back. Actually, what you're saying here about standards and let's tie it to StableCoyne, because I think that's another place where, As we'll talk about, there are many global jurisdictions that are moving forward with rules and standards around stable coins, including dollar-backed stable coins.

And that will happen before the U.S. does anything at the federal level, which is kind of mind-blowing when you think about it. But let's talk about stable coins for a minute. Not in a good way either. No, not in a good way. And so let's talk about stable coins. I mean, I always preface this by saying, and I think people, when we talk about whether it's CBDCs or stable coins, We have to begin by actually acknowledging that but for Bitcoin, we're not having this conversation. And I think that's important to say because there are many out there who say, well, I really like

this idea when it comes to like maybe a stable coin or a CBDC, but I don't like Bitcoin. And okay, you can have your view. But the reality is it was Bitcoin that got us thinking in line with the way Chris was talking about this of networks, of new transaction rails, of digital bearer instruments, of this new type of infrastructure for financial markets. So I do want to start there by saying, but for Bitcoin, we wouldn't be even having this conversation. But in terms of the development of stablecoins, as folks know who listen to you, part of the challenge with traditional cryptocurrencies has been volatility. And that introduced the idea, well, if there were a way to create, you

create a less volatile instrument that would be very helpful for transactions, enter the notion of the stable coin, which quite frankly is a very, I think in most cases can be a very simple construct. The idea of it being one-to-one pegged to a fiat currency is not a radical concept. And what it does is it creates a stable instrument. And what I think folks don't understand when they say, well, why do you need that? I can have a dollar in my bank account. The point is it's tokenized. It's a digital bear instrument, which is what can transact on those interoperable rails that we've talked about. So you're bringing the stability of the dollar into this digital environment and ecosystem.

And that can be potentially very powerful. So the conceptual underpinning for the dollar-based stable coins makes a lot of good sense. I think, you know, being transparent, the early use cases of stable coins have been largely, within crypto trading environments. People needed to have a stable way to bring Fiat into the system to trade into other cryptocurrencies, and that's been the predominant use case. I think some people get clouded by that and fail to appreciate some of the broader implications of stable coins and recognize that they truly could emerge as a viable alternative payment option.

And there's been a lot of news even recently from major players, whether it's Stripe or PayPal, you have circles USDC. These are entities looking to move stable coins into more mainstream type payments functions. And I think that holds tremendous potential. It puts competitive pressure on other traditional forms of payment. And it also, and this goes back to your point on what it means for the U.S. dollar, it can be a very powerful force in terms of reinforcing the role of the U.S. dollar globally. If a dollar-based stable coin that's well-regulated and trusted is available globally,

you will see, as we have seen in certain jurisdictions that have very volatile domestic currencies, you'll see a flight to the safety of the dollar. So if anything, one of the big challenges of dollar-based stable coins is the risk of internationalization of the dollar and what implications that could have and how other governments may respond to that. So I'll stop there. But that's at least how I start thinking about. this topic of stable coins. I'll add a few comments to that, but I'll start with a disclaimer

that I'm a member, an independent director on the board of Paxos, which provides the technology underpinning for PayPal's stablecoin and for others. I find stable coins to be potentially a great way to satisfy an unmet global demand for dollar exposure in pockets of the globe from South America to Southeast Asia, the demand for dollars is not fully satisfied by the paper dollars in circulation. They're hard to get hold of. They're limited in supply. They're not terribly efficient. The ability to use the dollars as a basis of transactions, but also to store value in dollar-based instruments as compared to, say, a worthless local currency that doesn't have any international value that may be in a highly inflationary environment.

And so I think stablecoins can be a great representation. Now, there's still so much public policy that needs to be worked out as we think about stablecoins. Think about interoperability. You know, when big tech companies roll out technology, I'm an Apple user, it's very hard to interoperate with other technology vendors kit, right? It's designed to be a walled garden. You can imagine a stable coin operator wanting to create a walled garden for use of their

instruments and trying to limit the interoperability with others. Well, I think there's a public policy question. Is that in the United States' public policy for dollar-based instruments? The way to think about the dollar is almost as if the United States' public and it's represented by its government is granting a license to base things on dollar. And as any licensor knows, you have the right to set certain limits and restrictions and how that's used. Let's talk about privacy. It's my belief that anything that references the dollar, anything that references the dollar,

should be consistent with the Constitution, including the Fourth Amendment right to privacy. And so I think there's a lot of public policy implications on the government licensing stable coins with privacy, with prevention of surveillance, prevention of control, censorship issues. The same concerns that people have about CBDC apply to stable coins. And as we've seen with big tech, they can be coerced by governments here and abroad to do their bidding. do we want that to be able to be done in the case of stable coins? So I think there's a lot of public policy implications to be worked out. But as I just said, I also think stable coins can be a great global representation of the dollar. They can enthrine the dollar further.

A lot of times I'd like to talk about the value of a digital dollar, whether that's sovereign or non-sovereign. But to get its value right, we need to get its values right. Yeah. I actually love what you said about those standards because I agree that just as a consumer, it is very annoying when certain tech doesn't interoperate. And it reminds me of that battle that happened over the cord, the port charger, whatever. I don't know the name for it, but the plug, basically, for the iPhone in Europe. And now they're going to be forced onto the same standard, which will make everybody happy

who, you know, has multiple chargers and it's just cluttering up our closets and, like, You know, you grab the wrong one and then later you can't use it. I mean, it's just a headache, right? So if the U.S. government could do that kind of thing for, you know, any of these different private stable coins, that would be great. I do want to ask you more questions about this, but first we're going to take a quick word from the sponsors who make this show possible. Deploy custom crypto strategies and boost your yield with perpetual options on VaultCraft,

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Join the community at Pocodot.network slash ecosystem slash community. Back to my conversation with Chris and Daniel. So something that was remarkable to me was, you know, I love what you said about stable coins. I love what you said about how it should reflect the values of the Constitution. However, I don't think, I'm not sure because I haven't read it, you know, end to end, but I don't think the Lemis-Jillabrand Stamblecoin bill, which is currently the one that's sort of most discussed, you know,

addresses those issues. that one would require a stablecoin issuers to have 101 reserves. It would ban algorithmic stablecoins. It would require compliance with anti-money laundering and sanctions rules. I'm sure there's other elements, but those are kind of the top points. So I just wanted to hear, you know, what do you like about this bill and what are the ways you think it could be improved? Yeah. I mean, what I will say is, let me actually start with this point. I actually think that we're making the regulation of stable coins far more complicated than we need to. I mean, in many ways, it's an important innovation, but there are, we have kind of well-established regulatory models

for mitigating risks associated with different types of payment products, right? We've seen stored value cards, prepaid cards, debit cards. There's a lot that's regulated through the state system. You also have the idea of regulating reserves and deposits at the federal level. My point is, and actually, let me unpack that for a second. The U.S. system has flourished under the dual banking system that allows state regulators to charter and regulate banks, and it allows federal regulators, the OCC, to charter and potentially regulate banks. A lot of the principles of how you ensure safe banking are not that complicated, meaning not to say that the compliance isn't critically important, but they're not rocket science concepts.

If there are deposits, those deposits need to be safeguarded. You need to have proper controls in risk management of those deposits. When you think about stable coins, one of the core risks, of course, is what happens with those deposits? Is there transparency? Are they audited? If they are being invested, what types of investments are being made? We see that at the state level. There already are rules for money transmitters in terms of what are appropriate types of investments. Usually they're going to be very low risk, kind of short duration government securities. So these concepts, of how you mitigate those types of risks are not novel. And I honestly believe that you could

properly regulate for that at the state level or at the federal level. New York DFS has been doing this now for a number of years and doing so effectively. The parts that are new may deal with some of the cybersecurity risks tied to tokenization and tokens themselves. There are financial crime and anti-money laundering risks that need to be accommodated or understood by regulators to make sure that we are able to prevent stable coins from being used by bad actors or for illicit finance. So there are some elements that are different in the tokenization context. But to me, this shouldn't be as complicated, I think, as we're making it. I think if we use the dual banking system as our model and recognize that there should be available state paths as well as federal

paths similar to what we've done with banking and the money transmission space, I think we could create coherent oversight of stable coin issuers quite readily. And again, it's already happening. I mean, I think part of the irony of this conversation is the status quo already allows for regulated stable coin issuance. New York DFS is probably the most obvious example of that. And the system has worked. So I scratch my head, quite frankly, when we look and see Singapore, you know, authorizing US dollar-based stablecoin issuers to license an issue within that jurisdiction. And we can't create a coherent, consistent framework within our own country dealing with dollars. And that's where I do scratch my head.

Yeah. Let's actually talk about this for a second because this kind of goes back to where we were going earlier, just about the geopolitical aspect, because this is what I feel like is probably the most important aspect of all this. I don't know if you saw that blog post that Morgan Beller, who I believe she actually inspired the Facebook Libra slash DM project. She's now a general partner at NFX, a venture firm. And the blog post was called Stable Coins are Defense Tech. And in it, she talked about how, you know, I mean, she actually, she doesn't reference the Singapore thing, but it's very similar.

But she said basically there's nothing keeping China from creating a digital coin that's backed by the Remen B that they call a digital dollar. And she said, like, there's nothing, you know, saying you can't do that. And she said to prevent a situation like this, she suggests that the U.S. government trademark the U.S. dollar, USD. And she suggested that through the trademark, then it would give like a true kind of government-backed definition of what U.S. digital dollar means. And then she proposes that there would be, you know, set requirements for any

entrepreneurs who want to engage here. They have regulatory clarity, for instance, fully backed reserves, auditable finances, and KYC founders. Her conclusion was, quote, this effectively allows the government to outsource building, growing, and sustaining the U.S. dollar in digital space to capitalism. So what do you think of her suggestions and just generally, like, what role do you think stable coins can play in geopolitics? Well, you know, we definitely should trademark it because, in fact, the dollar itself, is a trademark infringement. The dollar was stolen from the Spanish dollar, including the S sign with the two lines through it, which appeared on the Spanish dollar. And the Spanish dollar was the most successfully currency, successful currency of its time. It was technologically more sophisticated

than the French livres and the British pounds and the Dutch guilders that were used in global trade because it was minted using New World Silver, which was more consistently pure, making each coin more fungible with the others. But also, it was minted in a way that you could break off eight equal pieces known as pieces of eight, making it fractional. And because that was such a sophistication, when the United States government created its currency, it stole the name the dollar, it stole the fractionability into eight equal pieces, because the dollar is divided into halves, quarters and it used to be divided into eight bits, 12 and a half cents. It was divided into eighth.

And what we did was we looked around and we said, what's the most successful currency? Fine, we'll have that. Thank you very much. But we didn't trademark it. And the dollar, the U.S. dollar has been so successful that we've almost kind of lost sight of our need to husband it, to protect it, to develop it, to fluids. And what we're in this kind of time warp right now, where, and I think Leo Brainerd said its best is, are we really going to keep it analog in a new digital world and expect it to

perform that same function? Others may digitize it before us. And they are. And they are. And we're sitting back saying, well, the dollar's been so great, it's worked so well. We're absolutely having about this in a much more sophisticated fashion. This is a tremendous asset owned by the American people, entrusted to our government to protect, and they, quite frankly, need to move forward and start modernizing and protect it. Now, maybe stable coins, I think in many ways, stable coins are one way of doing that. And if it's done right, I think they can be a great messenger of the power of the dollar.

But we're not the only country in the world that can license them. Others can as well. So we need to think about it. And, you know, Daniel and I've done a lot of thought thinking about a U.S. central bank digital currency or a U.S. sovereign digital dollar, not to exist in isolation, but to perhaps exist in a in a favorable relationship with stable coins. And let me give you a perfect example, starting with an analog analogy. 90% of dollar based value is basically recorded on the balance sheet of a financial institution. It's. bank issued money. And that works. It works because of the 10% that's in the form of government

bills and notes. Why do I say that? Because people are comfortable putting most of their money in the bank because in a crisis, they know they can run down to the ATM machine and not only take possession of it, but more importantly, convert a bank liability into a sovereign liability. right? When it's in the bank, it's a liability of first, third bank. But if that bank gets into trouble, you want it to be a liability of the U.S. government, so you convert it at the ATM machine into a liability of the government. In a digital world, if you store your value in stable coins, what do you do if there's a run on the stable coin? And in the last three years, we've seen runs on stable coins. So what do you do? Well,

if the only sovereign choices are a digital euro or a digital yuan, but not a digital dollar, you might choose the digital euro. And what does that mean? That means de-dollarization in a crisis. And so one opportunity... Wait, and so I'm sorry, so just to be clear, so you're then advocating that there is a CBDC option? So what Daniel and I have said consistently is it's way too early to consider deploying a US digital dollar CBDC option. But we certainly should be experimenting with, if we're going to

experiment with stablecoins, we need to think about what are those relationships here. In fact, I think stable coins, in fact, some of the stable coin leaders I know actually believe a digital dollar would be very helpful because that way people can convert from a stable coin liability into a sovereign liability without having to change currency. They're not mutually exclusive. And I think that's what one of the misperceptions is out there. I mean, the Fiat U.S. dollar is the most risk-free form of money. It's the base layer of the financial system. We've taken the existing infrastructure of the U.S. dollar, and the private sector has built on that system, which is why we have credit cards and debit cards and all the different types of payment methods that are available

have been built on that infrastructure. What we're suggesting, suggesting, and this is the hypothesis, is that if you have a digitized, tokenized form of that same central bank money, it's the same, going back to our analogy of the shell, today I can go to the ATM machine and hold a green back. I can, that's a token. It's a piece of paper, but it's actually a token. What the suggestion here is, is that if you had that same ability to go to the digital ATM in order to withdraw an actual tokenized central bank, bank form of the dollar, that's the most risk-free form. Now, in reality, if it's not interest bearing, just like cash is not, and if it's not insured, just like cash is not, there's pretty

powerful incentives why people won't want to hold large sums of that form of money. So this is not to say that it's going to end up being wildly popular, much the way, I don't know how much you hold in your wallet, but I might carry $20 of cash in my wallet. I don't carry much more than that, there's not a lot of reason why I would do that. Similarly, you can imagine in an increasingly digital world where you do have stable coins, where you do have other forms of digital assets or tokens of financial instruments, you would want to be able, to Chris's point, to move into that fiat form of tokenized money, because it underpins trust in the system. Just knowing that that's available is something that's valuable. And I think Chris's hypothesis, which is a very

interesting one is if we don't have a version of the dollar in that form, but you do have a digital euro. To Chris's point, if you're redeeming and stable coins have a lot of very positive attributes, but one of the risk characteristics is that there is a risk of runs on a private sector stable coin. So the question becomes, where would someone redeem, what would they redeem into? and if it's readily available to do so into a different trusted fiat form of money, that may be what happens. And so this is something that, and again, I think that the bigger picture point here is that we're so early innings in terms of this form of innovation,

that at the very least, this needs to be part of what we're testing out within the U.S. is understanding what the consequences are down the road. You know, again, but for Bitcoin, we're not talking about stable coins, but for stable coins, I don't think people would have started talking about CBDCs. I mean, a lot of the CBDC conversation began because of the Facebook project and because of the digital you want. Before that, Tether. Yeah, that's right. Yeah, but I did actually want to ask about Tether because, you know, here we are having this discussion largely around what would apply to U.S. issuers. But, you know, in this case, Tether is a non-U.S. company. And in terms of U.S. dollar stable coins, they are far in a way the most dominant,

especially outside of the U.S. You know, inside of the U.S., yes, it's maybe more something like a USC. But, you know, what does the government do with that? Or what would you propose doing with that? You know, by the way, just another fact that I want to throw out there is they had $4.5 billion of profit in Q1. They have something like 20, I don't know, some, you know, two-digit number of employees. they probably have the highest, you know, profit per employee count like ever in the history of the world. So just curious for your thoughts on, yeah, how all that? I'll speak up to that. Tether is proof of my hypothesis earlier of this unsatiated global demand for dollar-based,

representation, transaction ability, and storage. And they are satisfying that. And the fact that the United States has not come up with a licensing regulatory regime for stable coins, to allow domestic operators responsible, focused, ultimately perhaps publicly traded, with all the disclosure that comes with that, to meet that demand is really a missed opportunity here in the United States. It's somewhat surprising the way the United States embraced

the first wave of the Internet 30 years ago by taking a do-no-harm approach, the same do-no-harm approach that we advocated back in 2017 when we're at the CFTC, instead we've done a lot of harm by getting in the way and not coming up with sensible regulatory structures. Now, when we greenlighted Bitcoin futures, what we said was there's demand for this instrument. It's a legal instrument. So let's put a regulatory framework around it so innovators can innovate. What's been missing is that same approach to say, this is a demand here. this is a commercial opportunity that responsible players wish to pursue, which is the whole

nature of a free market capitalist system, let's set a regulatory framework so they can go out and do the work. Instead, we haven't put the framework together. We've gone after firms with regulation by enforcement, and we thwarted the opportunity. And the exact success that you've pointed that Tether is enjoying is all taking place outside the U.S. jurisdiction, outside the U.S. tax base. I mean, if anything else, the self-interested of the government of collecting tax on that $4.9 billion should be paramount to get a regulatory structure done here. But unfortunately, it's a missed opportunity. For what it's worth, I think it was Visa that just put out some, it was Kai Sheffield that Visa put out some recent research in terms of some of the stats that are quoted around stable coins. And I thought what was interesting is that they recently concluded that of actual, actual real world.

payment volume, USDC had surpassed Tether. The way that, you know, because of the use of stable coin in trading environments and it's potentially being highly concentrated with specific holders, apparently there's a lot of bot-based movement of stable coins that I also would take some of the data around it with a bit of a grain of salt. So I think what will be interesting is to start studying and measuring more real world payments volumes, like our merchants accepting stable coins and transacting in stable coins. How is it being used? So I just have to throw that caveat in there that we just have to be cautious, too,

when we look at the success of different stable coins. Yeah, but I do think for sure in developing countries from what I hear, I mean, granted, I haven't, I've just heard this from people who've traveled to these places. But when you are, you know, like in Turkey or whatever, people, they don't want USC. After the DPEG last year, they all really doubled down on tether. So, you know, I frequently wonder what is the future of the company tether? Because I can't imagine the U.S. government is going to let that keep going on. But maybe they can't do anything because they were late to the fall on that.

I don't know. Well, that's where I think leadership in terms of setting standards. And look, there's a legitimate national security and law enforcement interest in getting the policing of financial crime right when it comes to digital assets. And as a former regulator, I look at it and I say, look, there's a distinction between bags of cash and a digital asset because it would be very difficult to move tens of millions of dollars in physical cash. You can do it physically, but it's going to require some very large suitcases. And that's not as efficient as clicking a button and firing something across the internet in real time. So I recognize the real law enforcement and national security risk there. This is maybe a slightly different area of conversation, but us getting you know, the getting right the way you police for financial crime going forward in this environment is critically important. And the U.S. should be playing a leadership role. Why? Because we should be setting standards that are then adopted around the world in terms of how you counter these forms

of illicit finance. That could decrease interest in certain types of assets and instruments that are trying to circumvent systems, right? So you need to have some uniformity in the way you approach this, but we need to lead. And we should absolutely be spearheading that, looking at privacy, enhancing technologies and other approaches. I know Chris has a lot to say on this. There's so much we need to do. We're going to have to change our mindset from our current environment, which is finance is a walled garden, unless you've got sufficient credentialed identity, you can't even come in. And then regulators highly reliant on intermediaries to report on activities by identified actors, we need to go beyond that to a notion where what regulators

are are nodes on blockchains, where they see activity suit anonymously, and they use pattern recognition, big data analysis, to analyze patterns, and then rely on probable cause to unmask identity. Yeah. Daniel and I struggled so hard at the CFTC. We were offered the opportunity to be a node on a very early. wholesale use case for a distributed ledger. And we couldn't accept the opportunity because it would have been considered a contribution

by the private sector to our agency. And it violated our contribution limits. And we couldn't even participate in it. And I tried to get that changed in Congress without success. I don't know whether it's ever changed. So to this day, an agency like the CFDCs, which is so forward-leaning that wants to explore a much more sophisticated way of market surveillance rather than identity-based but much more activity-based is prohibited by its funding statute.

And so there's so much work that needs to be done. That's something I'd like to see in the Lummis Gillibrand bill. I've spoken about it with the, both Debbie Stabenow and John Bozeman at the Ag Committee to get that changed. think they're favorable, but there's so many institutional barriers for the type of leadership that Daniel's talking about, but we've got to do it. And I think with a lot of younger men and women coming into Congress that understand the power of networks, we're going to get there. But it's going to take, you know, it's going to take more sea changes like the ones over the

last three weeks to finally get there. Let's talk about the potentially biggest sea change. We have this election coming up. As we mentioned earlier, Trump recently has begun courting crypto voters. You know, we talked about the bipartisan votes. The Biden campaign apparently has woken up to the notion of potentially courting crypto voters. So what, you know, would you like to see from whoever the next administration is, you know, like here are some things that, you know, I'm thinking the crypto community probably would be interested in is like, who do you think should be named as CEC chair? We have some bills floating around, or not bills, but proposals around, you know, sandboxes for launching tokens and stuff, but then also stable coins.

So, you know, talk a little bit about, you know, what you think the election could bring and what you'd like to see. Well, I'd like to see some of the things that we explored in our period from 2017 to 2019 at the CFTC advanced. and a lot of the ideas that Daniel and I've been talking about since our time in government move forward. I think this is an innovation that is going to power finance banking and money for the 21st century. And the United States dominated the last evolution of finance banking and money, the analog world of it. The question is really an open question right now, whether the United States is going to have anything close to the same influence.

In this next one. Those specifics, when you say that there are certain things you started then that you'd like to see continued. Like, what are those specific things? Well, so Lab CFTC was really groundbreaking in Washington. It was the first stakeholder in the federal financial regulatory system that was a champion for financial innovation. For financial innovation in the private sector, but for also financial innovation in the private sector, but for also financial innovation in the, in the, government sector. It was the point in which innovators could come in without fear that they were going to be monitored for anything they may say for a violation that was going to be reported to

enforcement. It was there to learn. And then to communicate that both within the agency, within the oversight committees, to the White House, within the entire government. I'm going to turn to Daniel a second because he ran Lab CFTC. But Daniel spent as much time in Brooklyn, in Silicon Valley, in Austin, Texas, in Cambridge, Mass. But similarly, he spent a time in front of Congress educating them with the White House educating them. So it really became the point at which learning took place and then learning was dissipated throughout the federal government at a very, very deep policy-driven level, that this

is technology that can allow us to do a better job. This is technology that's going to power the U.S. economy. This is technology. And so there was a really healthy dynamic there that led to the green lighting of Bitcoin futures, led to the green lighting of Ethereum futures, led to a lot of work that was continued under our successor, Heath Tarbert, and even Russ Benham. But unfortunately, the SEC turned the other way over recent years and has been very resistant. And I think it's kind of slowed things down. Now we're seeing a sea change again. Yeah, who would you like to see named SEC Tier? Because it just, and also, I mean, you worked in D.C., but tell me if my perception is wrong. My perception is, you know, Trump literally said, if you're pro-crypto, vote for me. And but, you know, I didn't hear things about like, oh, decentralization. And, you know, I didn't hear like anything that said to me, like, he really understands what he's talking about or has, you know, kind of brass.

Yeah, I think with all candor, it'd be hard for a president to focus on that level of the issue. I mean, you guys like Vivek Ramoswami are pretty rare that have that level of understanding of this. Yeah. And I think he's like in his late 30s, which goes to our comments about the generations. Yeah. But yeah, so assuming, you know, Biden also will not, you know, kind of. But personnel, to your point, Laura, personnel is policy. The people that are picked for these jobs do play an important role. And so I think that whichever, it's almost irregardless of. which side wins, the next chair of the SEC, I think, has got to be someone that does have this level of understanding. And rather than has a defensive posture, has a positive offensive posture,

how do we take this technology, which is not going to be stopped, and utilize it to further American interests? Could I just add that, you know, a couple of specifics, you know, Fit 21 does codify lab CFTC within the CFTC, it also codifies a very similar office within the SEC. So I think those are examples of trying to ensure that that approach to innovation is something that agencies have within them. And I think that that's a really important fact. There's also the Futures Act, which is legislation that would require financial regulators to take inventory of their technological capabilities to make sure that they're modernized and fit for purpose. So I think that those are important pieces. But let me let me come back to why, you know, the notion of a collab CFTC is so critically important. As we said at the

outset, there's work that needs to be done. And I think that's what's kind of maybe some folks are not honing in on is that rules and regulations are going to need to adapt to new technologies. It doesn't mean that these new technologies are going to fly outside of the regulatory perimeter. That's not right either. When I speak to people and I speak to the industry about this, I say, listen, and DFI is a good example of it. The DFI space is not going to develop and become mainstream outside of the regulatory perimeter. Just full stop, I don't believe that that's like a viable path for the DFI sector. So I'll say that to industry and say, you're going to have to operate within a regulatory perimeter. Now, on the flip side, where I'm very sympathetic is that the rules and regulations, as you're going to have to operate within a regulatory perimeter.

that the rules and regulations, as currently conceived, cannot accommodate a lot of the innovations that we see taking place. The existing rules and regulations do not accommodate a lot of these developments and new technologies. That's where the work has to be done. The agencies need to roll up their sleeves, revisit what the objectives are of regulation, and craft rules and regulations that satisfy those objectives while recognizing this new plumbing and infrastructure of financial services and markets. The same intermediaries may not exist in every scenario. And to the extent that there are intermediaries, they may look different. They may look different than the traditional centralized exchanges and the trading pits that we saw in old movies like trading places.

That doesn't exist anymore. So if your rules are drafted, focused on that environment, they're not going to work. So two things have to happen. The industry has to understand that for this to be trusted and mainstream, it's going to operate within a regulatory perimeter, but policymakers and regulators need to roll up their sleeves

and realize that if we don't craft modern rules and regulations that understand the technology, we're going to fail on many accounts. We're going to fail to protect investors and consumers, and we're going to fail to actually facilitate these developments within the United States. Yeah, to ask more questions about, like, who might be in place in different spots,

I just have to ask about two specific people. One of them, of course, is Elizabeth Warren, who is facing a challenge from John Deaton. You know, I really don't know what the likelihood is that he might defeat her. But let's just say in a hypothetical case, because anything could happen between now an election day that he does, how do you think that might change the state of play? And because we're sort of running out of time, I'm going to throw two in one. The other one is, of course, Sherrod Brown of Ohio, who is the Senate thinking committee chairman, and apparently his seed is, you know, perhaps more at risk. And so I just wondered, you know, what you thought could happen if either one of them ends up being replaced. Well, I think if they were, crypto would play a big role because of the amount that is being spent to defeat them by some champions of the industry.

And so I think people would sit up and take notice and say, wow, this industry has got clout if they're successful in those efforts. I'm not going to comment on those individuals, but I do think that the clout of crypto is already being felt. The fact that both presidential candidates who are relatively neutral on the subject going back only two months ago are now actively courting it. So the industry is making its clout felt, and it would be a further demonstration. of that if they were able to defeat either of the two senators you're talking about? The only thing that I will add is at least from a Senate banking perspective where Senator Brown is the chair. I would like to see the Senate take up fit 21, especially given how bipartisan it was in the House. I feel the same way on stable coin legislation. I think what leadership

needs to recognize is there was a, and if we're calling a spade a spade, I think there was a view a couple years ago following FTX that anything that gets legislated is somehow, you know, recognizing the industry or helping it go mainstream or giving it legitimacy. I think that's flawed in terms of really trying to, if the goal is to safeguard investors and consumers, I think that ship has sailed in terms of where this technology is moving and how broadly adopted we're seeing that not just, you know, the assets, but also the technology itself. So if you care about investor and consumer protection, and I, you know, I harken back, I think, Chris, it was your Senate testimony in 2018, where it highlighted where there are

existing gaps in regulatory oversight, the lack of a federal financial market regulator overseeing trading activity. That is a gap where any type of. of something like Fit 21 that provides that federal oversight, it can be construed as nothing other than enhancing the state of regulation in terms of investor protection. And so, you know, my hope is post-elections that folks realize that if you actually are trying to create a framework that safeguards consumer and investor interests, we need to fill some of those gaps and put some coherent policy in place. And hopefully, and that could happen this year as reasonable minds start focusing on it and realizing what some of these policy efforts are

trying to do. But if not, you can imagine post-election when we put some of the partisanship aside, I would be hopeful that the country can get some of these very basic things right. Yeah, I think it's a good point. I'll sort of put an endpoint on that by just simply saying, from the left to the right, whether it's Elizabeth Warren or maybe Bill Hagerty from Tennessee on the left who's on the banking committee on the right. I think they generally have the same interest. And that has how do we safeguard and enhance the U.S. financial system? But what I would say to all of them is in the face of new technology, the best way to enhance it is to move forward not to hold back. Time won't stand still. This technology is going to come. So we're not going to

succeed by trying to resist it. We have to enhance it. Now it's going to be filled with all kinds of challenges. It's going to be filled with new scams and new frauds because anywhere there's money and there's value, there's bad actors. That's why, as Daniel said, it all has to come in the regulatory perimeter. But we've got to design a regulatory perimeter that's suitable. And I began the conversation by using the analogy of the railroads. We used to transport our population from the east to west coast by railroad. And we had all kinds of rules for how railroad. And we had an interstate, was it called the ICC that was there to basically regulate the railroads. When we adopted airplane transportation, we didn't use railroad systems.

We came up with aeronautics. You know, we've got to recognize this as a new technology for how we finance our economy, how we enable people to store value for their retirement. We need to come up with new systems for it. And so we've got to move forward. And what I would say to people are left and the right, We have a lot of common ground here to get right. Let's get, let's get the rules in place.

Let's get forward-looking people in place. Let's get on with the job. Yeah, yeah, because I did name Blockbuster, but there's also, you know, like Kodak or Tower Records or Barnes &, no, I guess they're still around borders. I mean, there's like so many of these. But so, Daniel, you mentioned Fit 21. You said you'd like to see the Senate take it up.

And I was curious to hear generally, you know, your opinion of this bill. But in particular, I do want to hone in on one fact I noticed people took issue with on Twitter, which is I guess that this would have the CFTC regulate the spot markets. And they were noting that, you know, because I guess, you know, obviously the CFTC regulates a whole bunch of different types of futures. And it apparently doesn't, you know, regulate any of the markets for the underlying assets. And so this would be kind of like beyond what it typically does. So what do you make of that provision? Yeah.

So that's correct in many respects. I mean, that being said, the CFTC does have enforcement authority, current backward-looking enforcement authority over fraud and manipulation in commodity, spot commodity markets. So, you know, the notion that there's no connection that doesn't hold water in my mind, you know, there's another place to look where the CFTC does have authority that looks similar to crypto trading, and that's the retail 4X space. So leveraged retail FX trading, those platforms are also regulated by the CFTC. And Dodd-Frank gave the CFTC that authority under provisions that are called RFED. So the idea that the CFTC would be the logical regulator for spot commodity

trading doesn't seem like a stretch or a reach to me, especially given the experience over the last number of years regulating, you know, crypto commodity futures products and the fact that certain CFTC intermediaries or clearinghouses actually hold, physically hold digital assets or crypto as part of the settlement process. That has given the CFTC insight into how those, that spot product actually operates. So when you logically look at the regulatory landscape in the U.S., when it comes to what would be the appropriate federal market, regulator to oversee this type of trading activity, the CFTC seems to be the logical one. Oh, but I think what people in the crypto industry are saying is that, you know, the status quo

where there isn't, you know, either one of those agencies that regulates those markets, but, you know. But I corrected that assumption that the CFTC does not have an experience regulated spot markets, I think in a tweet recently, because in fact, the CFDC already does regulate some spot markets. Oh, for which commodities? Yeah. So in foreign exchange, in retail transactions, in foreign exchange, the CFDC does have

some spot authority. So it's not like the spot world is foreign. And because also that's regulating, you know, setting the rules of the exchange and others, the CFDC does have enforcement authority in spot markets. And I can tell you, the CFDC has teams that monitor activity in spot markets already in place. the only thing that would be necessary to be done would be setting the rules for the exchange operation and others.

And it has a great deal of experience of that in the futures market. So, you know, it's not a perfect fit, but there is no perfect fit in Washington. There is no perfect fit. The SEC would be a less perfect fit because it has no experience in Bitcoin whatsoever, which the CFDC has been monitoring going back to 2015 when we declared a commodity. So that's nine years of experience in that asset class. In fact, it even goes back forth because when it declared it a commodity in 2015, I had been studying it for 18 months before.

So CFDC's got a decade of experience understanding Bitcoin, which the SEC has none of. And so, look, there's no perfect fit, but Bitcoin is what, 55% of the market. You add Ethereum to that. Now you are close to 70% of the spot market. Again, the SEC has no experience in that. So, you know, there's no perfect fit, but the best of the imperfect is got to be the CFTC. One more thing to add to this is like when you look at how are the spot markets currently regulated, exchanges are subject to state money transmitter licensing requirements or these bespoke regimes like New York

DFS is like bit license regime. And, you know, while those are, they can be very robust, it's not federal market oversight that looks for things like wash trading and spoofing and has, expertise in that type of potential fraud and manipulation in markets. So, you know, for the, for the crypto community, it is a positive to support the integrity of markets. It builds trust and confidence in the trading in those markets. And that's a place where market regulators have expertise. I mean, that's something the CFTC obviously does in terms of policing for fraud and manipulation in trading activity. And I just want to really highlight that's the key point of why federal market oversight would make sense for what is very clearly trading activity.

That looks very similar. Again, our Fed, we talked about retail FX, very similar to the way that those markets operate and the trading occurs. You would want that integrity in those markets. Yeah. Yeah. So I know that we started talking about the geopolitics. Then we took a detour to like election and regulatory type stuff.

But I really need to circle back to geopolitics because, you know, you know, Here we have had this whole discussion. We have not gone into detail on what the Chinese have been doing with the digital yuan. So can you guys talk about that a little bit and what you think that means for the U.S.? I had the pleasure to serve on a Hoover Institute study that did a one-year examination of the digital yuan and issued a report to the Biden administration, which you can find online, the Hoover Institute, where we really, you know, we went into deep dive on the digital U.S. It's a very sophisticated instrument.

It, you know, its retail use is widespread. It goes into every facet of Chinese life from being able to buy a bus ticket to a train ticket to pay your rent to buy groceries. It's got a great deal of it has different tiered levels of surveillance. But it also has certain values that one can argue is appropriate for a close society, but it wouldn't be appropriate. for a free society. It's it's it's it is a close surveillance tool. Now, China denies that it will be made available for export, but I personally believe and and have reason to believe that that's not in fact the truth. I think China will white label its digital yuan in the same way it white labeled, you know, Huawei technology with its surveillance capability. And there are many societies,

many close societies around the world that will want to have a digital currency that they can use to surveil activities in their society. And I can imagine a digital boulevard put out by Venezuela in the next four or five years. It'll be a white label version of China's digital yuan. And I can very much imagine that client states of China, it's Belt Road Initiative, will be required to use a digital yuan or a white label digital yuan. instrument for payment of the debt on their port facilities or on their water treatment plants or other Chinese built facilities. And wait, and just to make it clear, then did the surveillance capabilities go to that government or to the Chinese government or both?

To be negotiated. Oh, my God. But the surveillance capability is there. What I'm saying is that I've had people say to me, oh, with China's a surveillance to who would want that? Well, that's a naive question. There are a lot of regimes around the world that will want that. That will be an affirmative selling feature.

Use our digital currency technology. By the way, China owns the majority of the global patents on central bank digital currency. Use our technology because this will give you very close surveillance on your people's activity. Oh, my God. I argue that in response to that, the U.S. ought to affirmatively say that anything that references the dollar, should be affirmatively censorship proof. Why?

Because the rest of the world will aspire to holding dollar instruments, whether they're stable coins or otherwise, because of the assurance of censorship proofing. And in private. Yeah, the future is going to be a battle of values. The future is going to be a kaleidoscope of different rails of value, different global networks. Some are going to be decentralized like Bitcoin.

some are going to be centralized and commercially operated like USDC and some are going to be sovereign like the digital euro and the digital yuan and perhaps even a digital dollar. The real question is going to be what do those labels like dollar or yuan signal in terms of values? If we can make the dollar always symbolize economic freedom, economic liberty, freedom to engage in lawful commerce without a government surveillance will win the future. Because the technology is not going to be the differentiator. Ultimately, it's going to be the values. But if our economic adversaries succeed in what they're currently doing,

which is making sure that global standards allow for censorship, allow for surveillance, then the future is going to be won by then. I'll add one final point. 30 years ago, when the internet rolled out of Northern California across the globe and changed everything we know about shopping, everything we know about communicating, everything we know about social networking, the United States was front and center, not only insisting that the standards, but building the institutions like ICANN and the Internet society that made sure that the first wave of the Internet was an open architecture,

that closed societies couldn't control for their own purposes where information could flow freely. 30 years later, that Internet is now becoming an Internet of value, but this time around, the United States is not front and center at the global conclave setting those values. The Europeans are, the Chinese are, and in terms of the Chinese, they want to make sure that surveillance and control

is part of the global standards, or at least the global standards allow for that. And that's really where the missed opportunity is for the United States. And I would hope as we go forward into the next decade, the United States resumes its rightful place in leadership with our values to make sure that the standards of this new wave of the internet are the same standards of the old one. That is, it reflects the values of free society, not close society. Yes, 100% agree.

Okay, so we're running out of time, but I have to ask one last question. Here we've been talking about a lot about stable coins. We have not touched on the Terra Luna incident. Not that I want to ask about that directly. However, we have seen a new synthetic dollar token. They're calling themselves Athena take off. I don't know how much you guys have looked into this. But, you know, originally it was being billed as an algorithmic stable coin.

Obviously, they're not using that terminology because of the fact that behind the scenes, it doesn't function the way that Tara Luna did. essentially this synthetic U.S. dollar token has a long staked-eathe position. They also have a short futures position. The staked-eathe pays a yield. The short futures can pay a rate. And that can, when you have the two, you have a delta-neutral U.S. dollar position. But then they can still make money.

So I was curious, what your opinions are on this? Because we have this Lemmas-Gillivran bill that is banning algorithmic stable coins. there are people in the crypto industry that argue that this is very different from Terraluna as completely different animal, that they actually think that this could be sustainable. Curious for your thoughts. So look, let me say this. I'm not familiar with this particular instrument, but here's how I usually analyze all of these different types of tokens and projects. And that is that every financial asset or instrument has unique characteristics,

depending on what it's designed to do and what it's trying to do. I think there's a major distinction between dollar peg, dollar backed one-to-one Fiat currency stable coins and something along the lines of what you're describing. That sounds like a very different financial asset or instrument to me that's going to have a very different risk profile and risk characteristics. So to start off, I think we'd always be very careful with terminology. Like the word stable coin was being used for so many different things that were not the same. I mean, and it's kind of an absurdity to like reference, you know, a particular type of futures contract and assume it's the same as another swap just because they're under this broad umbrella.

Very different assets, very different attributes. I do think that some of these innovations inherently contain a lot of risk. And that risk needs to be transparently communicated to people participating. My personal reaction is I don't like the notion of bans outright because that seems like a very, on American way to do things. But I do believe very strongly in transparency and very clear disclosure. So if you have financial assets and instruments that possess very high levels of risk, that needs to be very clearly communicated to people so that adults can make informed investment

decisions. If something is designed that is inherently flawed, that would be the only time that I would say, yeah. I mean, if you look at the asset or the instrument that's been designed and it's, guaranteed to fail, that they may have a different opinion when it comes to whether there should be bans or not. I don't have any specifics as to what you've just raised because I don't know the particular project, but that's how I typically think about these things. It's like, let's be very clear what it is. Let's be very transparent about what it is. Let's make sure

people understand inherent risks so that if it is going to be something available in the market, people make informed decisions on it. Yeah. Let's not ban innovation. Let's ban activity. but not innovation. Okay. All right. Well, we covered a whole slew of topics. And frankly, I had to leave a whole bunch of questions on the cutting room floor. But clearly there's just a lot of interesting stuff going on.

We talked too much, Laura? What? Well, I knew coming in, I had too many questions because obviously just the events of the last few weeks just added a whole bunch of new things. But yeah, this was hugely fun and informative. where can people learn more about each of you and your work? So you can find me at Cryptodad.org, my website, and there's information there, and also our work at the Digital Dollar Project, which is digital dollar project. Yeah, and for me, you can reach out through social.

You can also find me. My firm website is Gaticahorisans.com, and look forward to thoughtful comments or feedback. Perfect. Well, it's been a pleasure having you both on Unchained. Thanks so much for having us. Did you know Unchained is much more than a podcast? Last year, we unveiled a completely redesigned website, enriching your experience with the latest news, insightful analysis,

compelling op-eds, and comprehensive learning articles and guides for beginners. Explore all this and more at Unchained Crypto.com. Thanks so much for joining us today to learn more about Chris and Daniel and all things, stable coins. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Matt Pilchard, Juan Aranovich, Megan Gavis, Pamma Jimdar and Margaret Korea. Thanks for listening. Unchained is now a part of the Coin Desk

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