Unchained - The Chopping Block: Jake Chervinsky on How the SEC Has Lost Credibility - Ep. 503

Episode Date: June 8, 2023

Welcome to “The Chopping Block” – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner, chop it up about the latest news. In this episode, the Blockchain Association’s Jake Chervinsky breaks down the cases against Binance and Coinbase – and how they are different from FTX – what it means for the crypto industry, and who may be next. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights:  Why Jake believes that the Binance lawsuit didn’t present major surprises Whether the SEC is trying to ban the crypto industry by enforcement How Binance has been allegedly doing a huge amount of wash trading Whether Gemini is next on the SEC’s enforcement action list How CZ and Coinbase CEOs have responded to the complaints How the market reacted to the lawsuits What the differences are between the Binance case and FTX Why the SEC is alleging that Coinbase is operating as an unregistered broker, exchange, and clearing agency Whether token issuers can bring action against the SEC for harming their business or reputation Whether the crypto industry doesn’t take the SEC seriously Whether the EOS settlement in 2019 shows how inconsistent the SEC has been in its crypto enforcement actions  Whether these cases will have an impact in Congress and accelerate legislation  What would happen if Gary Gensler stops being the chair of the SEC Hosts Haseeb Qureshi, managing partner at Dragonfly  Robert Leshner, founder of Compound Tom Schmidt, general partner at Dragonfly  Tarun Chitra, managing partner at Robot Ventures Guest Jake Chervinsky, chief policy officer at the Blockchain Association Previous Unchained Appearances: Can Crypto Be a Force in the Midterms? Yes, Say Kristin Smith and Jake Chervinsky Everything You Need to Know About the Looming Battle Over Privacy in Crypto All Things Crypto Regulation With Jake Chervinsky Disclosures Links Unchained: SEC Sues Coinbase for Breaking Securities Laws SEC Files Motion to Freeze Binance’s Assets, Asks for ‘Sworn Accounting’ SEC Files 13 Charges Against Binance Including the Mishandling of Funds, Sale of Unregistered Securities SEC Calls Solana, Polygon, Algorand and Other Tokens Securities but Misses Ether in Binance Lawsuit US House Republicans Propose Bill That May Give Crypto Assets a Path to Becoming Commodities Fortune: Former Coinbase employee and his brother settle with the SEC, which again dodges proving whether cryptocurrencies are securities Learn more about your ad choices. Visit megaphone.fm/adchoices

Not a dividend. It's a tale of two Kwan. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5 protocols are the antidote. DFI is part of the antidote to this problem. Okay, great. All right, let's go ahead and do this. Hello, everybody. Welcome to the chopping block.

Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day. So, quick intro is first we've got Tom, the defy maven and master of memes. Next, we've got Robert, the Crypto Connoisseur, and Captain of Compound. Then we've got Tarun, the Gigabrain, and Grand Puba at Conlet. And then today we've got a special guest, Jake Chervinsky, jurisprudential juggernaut at the Blockchain Association. And then you got myself, I'm a Cidhapp had a man at Dragonfly. Jurisprudential juggernaut.

That's your best one. I really like that. I was wondering what I was going to get, and I'm very pleased. So thanks for that. Well, let me read this statement. We're early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even like that. advice advice advice. Please see Chopin Block to X, Y, Z for more disclosures. Jake, it has been a pretty

awful week, and I'm really glad that you are here to talk us through it. Let's jump into it, because I think there's a lot that we're going to be discussing today. So let me first start with a broad summary, and then we're going to go through these individual cases one at a time to get a better understanding of them. So it was yesterday. So today we're live streaming this on Tuesday, June 6th. Yesterday, the SEC dropped a mammoth lawsuit against finance, basically claiming that Binance was engaged in a web of deception to evade U.S. particularly calling out Binance U.S., as well as other stuff that was going on on Binance Global, which we were already aware of from the CFTC lawsuit.

So that was yesterday. And yesterday it ended up spooking markets and causing a lot of consternation about, okay, crap, this happened to Binance. What does this mean for the rest of the industry as well as, of course, Coinbase? Well, today, we just saw the lawsuit drop for Coinbase, basically mirroring a lot of the claims that were made against Binance, stating that Coinbase running an unregistered exchange, clearing agency, and broker. Doing much of stuff they're not supposed to be doing without appropriate registrations and licenses.

And then lastly, they also stated that, I think it's upwards of 12 tokens that they've stated over the last two days are securities. Among those tokens include Solana, Cardano, NIR Protocol, Axe Infinity, mana. basically, at this point, almost everything in the top 10 besides Bitcoin, Ether, particular stable coins, including Tether and USC have not been labeled securities, and Dogecoin and like coin are the only things in the top 10 that have not been labeled securities as of the last two days. So this is a massive shot across the bow by the SEC. Obviously, they were telegraphing some of this before, but at this point, we have the full frontal assault on the crypto industry.

And just today in a statement on CNBC, Gensler stated the following sentence, we don't need more digital currency. We already have digital currency. It's called the US dollar. It's called the euro. It's called the yen. They're all digital now. And then lastly, he said crypto is built a field, crypto is a field built on noncompliance with U.S. securities laws.

So let's start with the Binance case because that's where we were yesterday because it's the mediest one and it's the one that also is most ensconced in claims of fraud. So the claim is not just that, hey, Binance is running an unregistered. exchange. Biden's is doing all sorts of unsavory and illegal things. Jake, are you able to kind of walk us through what were the most important pieces from this lawsuit that the CFTC filed against Binance yesterday? Yeah, happy to do that. I guess I'll start with my disclaimer, which is I'm a lawyer, but I'm not your lawyer and nothing I say here is intended as legal advice. So if you have any questions about your own legal plans, definitely go get your own lawyer and don't do or not do anything just because I say so here. I guess let me start with some sort of high-level takes on

what the SEC did yesterday with finance, and then we can get into some of the details if you want. I think from a high level, as a matter of law, there wasn't a lot that we saw in the complaint yesterday that was a surprise. There were a couple things from, I would say, a policy perspective and a factual perspective that we learned about how the SEC is approaching crypto and also about what was going on at finance and especially finance US that was a bit new. But from a legal perspective, we already knew basically everything the SEC said in the complaints yesterday against finance. We knew that the SEC thinks that basically every single token in existence other than Bitcoin is a security. And they named yet another group of tokens in the complaint that they said

are securities. We knew that they thought that staking programs, right, programs that offer some yield to users are securities. We saw that in a settlement the SEC entered with Cracken a couple of months ago. So we see that again in the finance complaint. We see, I think, somewhat oddly, that the SEC thinks that BUSD, a stable coin, is also a security. We found that out when Paxos revealed that they had gotten a well's notice without allegation. And yet again, we see in this complaint against finance that the SEC claims that BUSD is indeed a security. So we didn't really learn a whole lot new about the SEC's theories on the application of the securities laws to crypto that are relevant for the broader industry. I think the two things that we did learn that are

quite new, are number one, the SEC as a matter of policy has decided that they're not playing around anymore, right? They are not trying to regulate this industry by enforcement, which is what they've seemed to be doing for the last, I would say, four or five years. They're trying to ban this industry by enforcement, right? They are not trying to leave any room for there to be a crypto exchange, like finance or like Coinbase, that can offer services to U.S. persons outside of trading Bitcoin and maybe trading ether, although that's sort of up in the year as well. So I think that, I think that you know, the gloves are off, so to speak, and the SEC has decided that they really are coming after the whole industry, a sad situation, but I think pretty clear. And the statements that

Cher Gensler made on TV that you mentioned, I think, you know, go to show that exact same thing. The second thing that we learned is really very specific to Binance. And frankly, it's reminiscent in some ways of the allegations that we heard against FTX. And I'll stop here for a moment just to say, these are allegations. They are not proven. They're just, things that the SEC thinks are true, that they were willing to write down in a complaint to file in federal court, but always we should presume innocence, and Binance will certainly show up to have it stay in court to contest those allegations. But we saw allegations in that complaint of things like Binance claiming that there was standards to prevent market manipulation

on Binance U.S. that actually did not exist. That was the nature of the fraud claim that was made, that they were potentially engaged in watch trading through a related market making firm that CZ was operating that sort of seems a little bit like Alameda, that the alleged distinction between Binance.com, the international entity and Binance U.S., which was supposedly being run totally separately, was actually under CZ's control, much like we heard that FTXUS was potentially being controlled in some way by Sam Bank, Minfrey. And also that it's not totally clear where customers' assets are, which really is, I think, a pretty significant issue. So there's sort of a mix of these outlandish legal theories that the SEC has been advancing in the context of finance with

some potentially really serious stuff that I think is worth exploring. So it feels to me like there's a lot of stuff in here that is old news. We learned a lot of this from the CFTC lawsuit against finance a while back. And so the SEC kind of retreading and giving some more evidence, some more testimony from individual officers at finance that corroborate some of these things. the big things that were surprising to me. So one was just the amount of wash trading on Binance U.S. That was surprising to me. Binance U.S. was posting like moderately good volumes,

but not like, you know, when you go in core market cap and you see the fake exchanges that, you know, it's like, number two exchanges like M-EXC and it says it does $3 billion in volume a day. You're like, that's not true. Like obviously not. Binance U.S. was never posting those kinds of volumes. So I was like, okay, if you're going to wash trade,

like, why not wash trade your way to like, you know, seat coin base, but I guess they were, I don't know, they were, they were reasonable about it, which I guess is good. The other thing, I mean, I don't think anybody. Reasonably sized wash trading. Reasonably, I thought it was very reasonably sized washing. Not to bring back a 2021 meme. I, I, I was, I feel like I was not surprised that CZ still, you know, wielded all this

control over Binance US. I feel like anybody who knows CZ or how he operates would not have been surprised by that. And the fact that, you know, all these executives kept leaving. I don't think anybody who really understood what was going on there had an idea that they were totally separated. Well, speaking of officers that kept leaving, I think when the CFTC complaint came out, they had screenshots or records of like CZs or some internal signal chat and you were like, how did they get these? Because presumably they did not break signal.

And in this complaint, they say like two former CEOs of finance or BAM trading, you know, were cooperating. And so presumably, like, that was kind of how this whole thing came to like, or how a lot of those internal chats came to the SEC. Yeah, I'd want to see the timestamps because some of that stuff was clearly before they entered the U.S. market. Because they were talking, because this is like the Tai Chi plan, which was basically, this was leaked like in 2020, I think, through CNBC, which was Binance's plan to basically create Binance U.S. as sort of this buffer state to prevent them from, distract and prevent the SEC and other U.S. agencies from going after Binance directly,

but instead, you know, using it as a sort of corporate shield from any kind of U.S. enforcement against the main Binance.com. Obviously, once that leaks, it looks really bad for you. We did solve the mystery of where Catherine Coley disappeared, right? I suppose so. Well, we don't know where. We don't know where, too. We do know who she was talking to.

Yeah. Well, yes, yes, yes. Well, no, I think she's back. so it's like totally it's it seems like she's glad to hear that well there was there were all these like theories right on the internet people were just like she disappeared no one no one has seen her in months type of thing it's it's good to know that this strategy of like hiring very respectable and and um government facing folks who are white and and basically using them as puppets doesn't work like it totally doesn't work and in this case i'm sure c z regrets

having put any of these people in charge of Binance U.S. because obviously they're the people who are feeding all this information to the ESEC, and I'm sure they're probably cooperating with the GOJ as well in whatever investigation they're doing. I mean, you know, a thing of speculation that I always think about is like, what do you think the interview process was for that job? Like, can you imagine the interviews

days afterwards? Gotta have had some very funny questions. I can imagine, I feel bad for both of them. them because I can imagine it looked like an amazing job. You finance, the dominant exchange in the world is looking to go clean and launch something in the U.S., you know, everybody has whatever pet complaint about Coinbase. And so it's like, oh, yes, this is the, and I can be at the helm of this and we're going to create the most regulated exchange and blah, blah, blah.

And I'm sure CZ told them all the right things until it's actually time to show up for work. And it's like, hey, you don't have control over anything. You don't have the wallets. You don't have any of the software. You can't even directly interact with customer accounts. the level of control that Binance.com is alleged to have held over Binance U.S. operations is just, it's crazy.

Like, basically they had control over almost nothing. This is sort of an important point, though, and not just for Catherine Coley and for Brian Brooks, who, you know, the complaint says, Ban CEO A and Ban CEO B. Like, we don't know who these people are, which is always a bit amusing. But I think this is an important point that from the outside, there is nothing wrong with this type of corporate structure where you say, I'm going to have an offshore exchange in some jurisdiction, which will offer services only to non-U.S. persons in compliance with all of the jurisdictions where I offer those services, and then I will have a separate U.S. entity that will only serve U.S. persons and will only provide

the services that are allowed under U.S. law. There's nothing wrong with that at all, and I wouldn't blame anyone for, you know, sort of looking at that and being enticed by that job opportunity. The problem is when it's a sham, and I think that's sort of how the complaint reads, is that this wasn't a legitimate effort to set up a separate compliant U.S. exchange. It was more focused on just extracting more value from the U.S. markets. And you can get away with that for a while, but always there are going to be those chats, right? And that, for me, as a lawyer, is the most shocking part. But it sort of never, I never get past how shocking it is to see what people are willing to put down in writing. And then that gets into the hands of investigators and it gets into a federal complaint.

And then we all get to read it while eating popcorn. Yeah. So the key money shot was the, there was a, a line from a former CCO that says, I think it's something along the lines of, bro, we're running a effing unlicensed securities exchange, which is a very bad word to have entered into the record when you're fighting the SEC. From I think the chief compliance officer, too. Yeah. Yeah. I think the other thing that's kind of funny is, have these people not read any books about

the financial crisis? I feel like the famous thing is that Jamie Diamond only writes like two word emails or whatever, like since 2008. Yeah. I mean, it does seem like there's not a lot of texts of CZ specifically. It seems like CZ, like a lot of these are recollections of conversations they had. So it does seem like CZ probably does have reasonably good sort of Opsack where, you know, there's very little written communication with him. It's just, you know, okay, I had a conversation with him and here's what he said. So it's very, very mob boss vibes from CZ. I think he plays

the role well. A question from our listeners, because I was watching this since we're live streaming and we have a chat box, is Gemini next or is Gemini just too small to fail? It's, yeah, look, it's very clear that the SEC is going after the biggest players, right? Basically, we have first, Binance, the largest exchange in the world by far, and then Coinbase, the largest public company in crypto and the largest U.S. exchange by far. Like Jake said, they're trying to make an example. They're trying to make examples in the industry. They clearly don't have the resources to go after everybody

because it's just such a, you know, you can see these, both of these lawsuits, which by the way I read in its entirety last night, the 130 pages, and then I read a good chunk of the 70-plus page Coinbase lawsuit this morning. These are large documents with a lot of investigation behind them. And so the SEC doesn't,

they can't really go after everybody, but they can go after the big guys and say, ha-ha, look, you're on notice. If you keep doing this stuff, you're next. Yeah. And this is, I mean, I don't know what's going to happen to Gemini or anyone else, but this is a pretty typical pattern for enforcement at an agency like this. They start with the low-hanging fruit, right?

They start by going after the people who lack resources to defend themselves, who have so clearly violated the law that they're going to score a win and they're going to get either a judge to write an order or they're going to get a settlement that sets forth a law in a way that is favorable to them. Then they take that order or that settlement agreement and they work their way up the chain. And I think that's exactly what they've done over the last few years with crypto, right? You can go even all the way back to the Ether Delta settlement back in like 2018, where the SEC says EtherDeltha is an exchange. It's trading tokens that are securities.

They wouldn't identify at that time which tokens were securities. But then they move forward and they go after more brokers and more exchanges. They went after Beeksie and then they went after Bitrex. And now here we are with Coinbase and Binance, the two by far largest exchanges in the world. I'm not sure what they get by then allocating more resources to work their way back down the list. But I sort of feel like one big thing we have to watch now is where does the SEC allocate resources next? These are going to be two very huge cases. And they are an agency with limited resources.

So I think it's a big question, you know, how much do they have left and who else would they go after next? One interesting thing you saw from Binance. So they merely hit back with a, I don't know, kind of an empty statement I felt like of just saying, ah, screw you guys. like why are you trying to destroy crypto? And then CZ on Twitter, I think, has been trying to take a book from Brian Armstrong and just being kind of swinging at the SEC, just kind of antagonistic and almost like slightly populist in his response. At one point last night, he tweeted, Who Protects You More, Binance of the SEC and just posted a Twitter poll.

I don't know. I question the wisdom of the strategy. But I haven't, you know, obviously I'm not a lawyer. Jake, what is your take on what CZ is doing and how this is going to play in the scuffle that's to come? I confess that I'm not sure what his strategy is. I think it could be like you said, trying to take some cues from Coinbase. I'm not sure it sort of comes across that way. I think Coinbase deserves an extraordinary amount of credit. I think they are in a position and have been for quite a while that is extremely unique. It's hard to imagine any other publicly listed. American company in such an open and public battle with a regulator that asserts jurisdiction over them and not shying away from that fight, right? The fact that we knew any of this before the enforcement action was filed is pretty unique on its own that Coinbase, you know, had been so aggressive in seeking clarity from the SEC, submitting a petition for rulemaking,

being, you know, very public about the meetings that they had, publishing the Wells response that they filed, right, making that video that Brian and Paul Greywall, their CEL made, which I thought was pretty amazing, a 10-minute video, sort of throwing the gauntlet down to the SEC. We probably knew that this was coming by the time that video came out. And I think, honestly, that is them writing a brand new playbook for how to handle a situation like this. From what I'm seeing from Binance, it doesn't really strike me as similar so far. So I'm not really sure what the communication strategy is there. The reality is that unfortunately, Binance has very few allies in the U.S. Right. So Binance U.S., as we can see, their volumes were inflated because

is this wash trading, so they never really had the market share that they apparently were advertising that they had. And beyond that, it hasn't been successful in the U.S. Obviously, the founder, CZ is a Canadian Chinese guy who lives in Abu Dhabi as far as we know. And so there's, I think, very little, going to be very little sympathy for a similar type of feeling of like, hey, you didn't give us the rules, you didn't blah, blah, blah. And of course, relative to Coinbase, Coimbez did not have any allegations of fraud or kind of gross misconduct in the way that we're seeing here for Binance. So it's just a different ballgame and I don't think the same

kind of reaction is going to play the same way. Certainly not to the American public but not in a court of law either. So one of the things that is also interesting. So yesterday when we saw this lawsuit come down, markets just dumped. So there was a very, very rapid just instinctive reaction for the market of like, oh, God, it's finally here. All these crypto assets are going to be rendered illegal because the SEC is named all these

things to be securities. And the biggest exchange in the world is now under fire. And maybe this is the beginning of the end. That said, the outflows from Binance have actually been pretty muted. Over the last 24 hours, I think Nancy reported something around the order of a billion and a half that flew out of Binance.com. and a smaller number that, you know, the hundreds of a few hundred million, I think,

they came out of Binance U.S., which are relatively small fractions of the capital that's in there, which I think means right now, I don't know how to interpret that, but my assumption is that even insofar as Genzo is trying to paint this as, is Binance not FTX 2.0?

And he's drawing all these insinuations like, oh, look, you know, he also has this lack of separation between the market maker and the exchange. You know, there's also, you know, the commingling of assets. And there are all these things, there are all these things that people are trying to draw this line between FTX and, and, uh, finance.

I don't think the market is convinced by it. That seems to be what they're telling us by the, and the second thing, of course, that there's nowhere else to go, right? So, okay, yeah, finance is guilty of securities violations and running an unregistered exchange and blah, blah, blah, but so is everybody, right? Where else are you going to go that's not violating securities laws

or is running an unregistered unlicensed exchange, whatever? So I don't know, what do you guys think about why it is that we're not seeing exodus out of Binance compared to what it seems like the SEC wants us to think, which is that, hey, this thing is a ticking time bomb, get your money out as fast as you can. Well, not to defend Binance as an exchange specifically, but these are allegations that I think will play out over years. This is not, I think, to the average user and is existential risk to finance the exchange, whether it's Binance, US, or Binance.com international, that is a catalyst for removing their assets from the platform. FtX was truly an insolvent house of cards, black hole of fraud,

where all the assets were gone. But I don't think anyone suspects and nor has it been alleged that that's the case with finance. And so I think to the average user on crypto Twitter or wherever, it doesn't have the same sense of urgency. So, you know, it's just another day as usual. I mean, Coinbase came out saying, you know, for them specifically, it's business as usual. And I think finance is basically indicated the same. It's business as usual. And so to a user, you know, they're not going to pay as much attention to a court case and what the implications are over the next three years as the exchanges are. Because to them, it doesn't really matter as long as the exchange is still up.

It's okay. And I don't think, obviously, it's been some actions where the SEC has tried to get a temporary emergency order against finance. but even that is actually to protect the users and preserve their assets and make sure they're accounted for not to put the exchange in a position where the money is mysteriously gone. And so I think that's why we haven't seen on market exodus from either exchange. That makes sense. I also think the person who's taking over for most of the operational stuff at finance, Richard Tang is that name?

He's the former head of the Abu Dhabi equivalent of the SEC. and I think like I don't see Yeah but he also worked for If I remember correctly he worked for the Abu Dhabi sort of regulator And I kind of feel like everyone in the Middle East in Asia doesn't really care

Like that that's like the TLDR is I don't think there And I think that's a large portion of the customer base I don't think that's zero And I think people in South America The Middle East Asia don't really care right They're like fine the US is doing this But like doesn't really affect us Yeah, I don't know that they don't care, but I think they certainly care less than the U.S. does.

Because I think for, if you're in Latam or, I mean, I don't look, I don't know that much about Latam. So let me just with a broad brush say that in Latam, you probably trust Binance more than you trust the second largest exchange that that's local. Because even insofar as Binance doesn't have perfect controls or maybe there's some commingling or there's some of this, some of that. They trust that Binance is a large profitable institution that has a very strong track record of not being hacked, not defraud. putting people, not, you know, stealing money. Now, obviously they do some shady stuff as we're uncovering. But on balance, the average exchange that's going to pop up in, you know, Brazil or Argentina or something, there's a very good chance that they're likely to just

be insolvent within a couple of years, which is a, which is something that I think right now, as you said, Robert, many people are not really concerned that that's what's going to happen to finance. They may be concerned that Biden's is not following the laws and that they're not properly securing assets in a way that is befitting of a multi-billion-dollar institution. But nobody's worried that Biden isn't good for it. Nobody's worried that Bidenas doesn't have the money. Yeah.

Also, you are right. I got wrong. He was actually the head regulatory officer in Singapore or not at the main exchanges. Yeah. And it was good time. My point is, my point is he seems to basically, I don't know if you've read some of his articles or writing and stuff. But he seems to be more like very much like, hey, we're going to be compliant, like saying all in the other jurisdictions and kind of ignoring the U.S. purposely

and like all communication. Yeah, I think appointing Richard Tang as sort of, they didn't quite say he's the new CEO. They sort of said he's sort of being groomed in a very senior position, kind of insinuating that he's next in line behind CZ. This feels like a way of calming everybody that like, hey, if CZ gets too hot, we've got a plan ready. to kind of move CZ over and this guy steps in and there's going to be no disruption to our operations even if something, God forbid, were to happen to CZ. So I think the very, very good strategy by Binance,

I think that's probably why markets didn't tank more than they did yesterday was them naming Richard Tang in this article the same day that the lawsuit dropped. I thought that was very shrewd of them. Well, I was going to say, you know, I think it's very easy to say like, oh, there's bad news relating to an exchange, crypto must drop. just to throw a thought experiment out there,

if there were no exchanges at all, right? Like, let's say every exchange disappeared from the face of the earth. What would the value of Bitcoin be, you know, tomorrow? Assuming every exchange just ceased to operate instantaneously, right? Is it zero? No. Right? Is it more than it was the day before because it's scarce and hard to, you know, acquire?

But the beauty of crypto assets, unlike normal assets, is there some sort of like Heisenberg principles. You can't actually shrink all the exchanges to zero because you can always start a new one. You can't do that with equities because the custodians are restricted. But you definitely can with self-pest the assets. So the idea that you can shrink it to zero and then also hope the market goes to zero, there's like some minimum you can do for both of them. And I think that that's kind of like the beauty of crypto is you can't kill it the same way.

But you can make the price go down by lot. You can certainly do that. Yeah, I agree. I don't think it goes anywhere near. It definitely doesn't go to zero. It definitely doesn't go to zero. There's some local Bitcoins guy somewhere who's always going to be trading Bitcoin for Fiat. So that's for sure.

Okay, let's move on from the Binance story. And I want to talk about Coinbase. So yesterday the whole world was reeling. Markets were in the toilet after the Binance lawsuit was unveiled. And then basically overnight, we got the news that the SEC was unveiling a lawsuit against Coinbase. Roughly the same arguments. So unregistered broker dealer, assets or securities. staking as a service is unregistered security program, blah, blah, blah,

and they also insinuated at the margin that maybe there's something also going on with Coinbase wallet. They weren't, they were kind of circumspect about how and why Coinbase wallet, which is a non-custodial kind of metamask competitor type thing, how and how in what way that seems to cause any kind of liability on their part. And there were also 10 states that also issued, they coordinated for this, basically mostly on staking. And I think that the different states asked for different. things. One of them, I think Alabama was like a show cause order basically saying,

explain to us why we shouldn't send you a cease and desist. And then California, I think, just sent them a cease and desist and said, stop offering unregistered securities in California. So weirdly, today, so this morning, Coinbase was down, I mean, Corvice was down a lot yesterday after the Coinbase stock was down a lot yesterday after the Binance thing was unveiled. They were down again this morning after this SEC lawsuit was unveiled. And markets were also down. And then over the last, six hours, markets have just been grinding upwards to the point where now Bitcoin is higher than it was before the Binase lawsuit dropped. So I am really struggling to understand what happened there and why

it is suddenly, I want, like, I feel like maybe some explanation is that we ripped the band-aid off. Like we sort of knew that this was coming. We knew that there was going to be a lawsuit because the Wells noticed against Coinbase. And now that we see it, it's kind of like, oh, okay, this isn't that bad or this is like there's nothing in here that surprised us. Yeah, okay, a bunch of these things were named as securities by the SEC, but Gensler's already said that he thinks everything in crypto is a security. So we just see, you know, this is, yeah, this is consistent with what he's saying. And I guess everyone noticed that everyone else didn't run away. So maybe it's kind of like a emperor, everyone was worried everyone else would sell. And then when no one else sells,

everyone's like, oh, okay, never mind. Here's my second contrarian take on this in a row. Go for it. The actions are so bold. and likely so wrong in some cases, and it's going to be an accelerant and expedite the passes of legislation in the U.S. That actually creates the long-term solution and creates rules for the industry, right? It's such a forcing action that's been taken this week

to bring charges against both Binance and Coinbase, that it's more likely we get to the end state of actually having legislative definitions for this stuff, such as like we're seeing with the market structure bill, and I'm sure Jake knows way more about this than I do. But these are the things that are going to actually bring the solution to bear. Yeah. If anything, I thought the Coinbase one was kind of boring. It was a lot of copy paste from Binance and Cracken and like other. It's like, it's like, these arguments again, you know, it just, I think that the wallet thing was honestly the only interesting part. Also, I mean, the fact that after the crack in settlement,

Coinbase came out saying, hey, here's why our staking is different. And then, of course, they get wrapped up in this as well. I think the other bit that people have kind of been discussing or this sort of question is like, well, why did the SEC, like Coinbase go public if they thought they were running an unregistered securities exchange, BD, et cetera. And, you know, I think sort of the counter argument is, well, you know, it's all about risk disclosures, like anything can reasonably go public as long as there's appropriate reporting and disclosures. But a lot of these assets that they're describing were listed on point base at the time it went public. So it's not like, oh, later on they, you know, circumvented or had some sort of went rogue and added these assets

that SEC deemed securities. That was the case at the time it went public. So it does seem a little silly in some ways. I totally agree with all of you. So I think, first of all, absolutely yes, this will accelerate legislation. And we can talk more about the legislation that's moving through the House right now. I think it's really exciting. And I do think the SEC has just lost so much credibility through this approach, that it's just clear to people that this is not going to work. And we don't actually want to ban crypto in the United States, right? Just because Chair of Gensler wants to do not mean that that is the prevailing view of most policymakers. And I do think the fact that they've decided to, you know, like I said before, sort of throw down the gauntlet and say,

we're not trying to regulate this industry. We're trying to kill this industry. I think that's really increase the impetus for legislation. I also do think that this is a bit of a nothing burger. I totally agree with Tom. I read the finance complaint yesterday and I was like, hey, this is a little bit spicy. And then I read Coinbase today and I was like, okay, this is basically just the finance complaint without any of the interesting things. It's just a pure regulatory violation. And I will tell you in the last maybe six months or so, you know, I get a lot of questions from people about what's going to happen in crypto policy, what's going to happen in regulation? What are the scariest things out there. And the two things that always come up are the Ripple case, right? If Ripple loses and XRP is deemed as securities at the end of crypto in the United States. And second, what's going to happen to Coinbase? And I think a lot of people really believed there was going to be a day where the SEC was going to show up and say, Coinbase is illegal now. And then Coinbase would shut down all of its order books and we would all pack our bags and go back to Tratfly or something like that. And I think people were sort of shocked to see that like this is business as usual until this

case gets resolved. And this case is not going to get resolved for the next, I would say, at least two or three years, maybe much, much longer than that. And even if it does get resolved, let's say the SEC wins a judgment that says some number of these tokens are securities. Coinbase the next day can delist those tokens and continue operating its exchange without having to register. So I think it's clear to people that this is not a path where we're going to get clarity. I think that's going to happen in Congress and there's going to be a lot more focus on that going forward. Some of the claims here, like, so it's important that you pointed that out that unlike Biden, as there was no restraining order or injunction against Coinbase. This is just like a normal lawsuit.

The three major violations are running an unlicensed exchange, not having a broker-dealer or engaging in broker-dealer activities without a broker-dealer license, and then being a clearing agency. Can you explain what those three things are and how you acquire those things in order to be doing what the SEC says they're doing in a licensed and compliant way? Yes. So, okay, let's think about the traditional. security markets. Under the federal securities laws, in a traditional securities market, you have three different entities that perform three different services in the market. You have the exchange. The exchange brings together the buyers and the sellers of the securities. It's the marketplace where

the trades happen. Then you have the broker. The broker represents a customer. It's the broker's job to take orders from the customer and then bring those orders to the exchange. And then third, you have the clearinghouse. The job of the clearinghouse is basically to execute the trades, right, to settle the trades. Often the clearinghouse is also the custodian for those assets, right? So in securities markets, that's the DTCC, the depository trust and clearing corporation, that basically has custody of every single stock that you can imagine in the world. In crypto, the exchange... If I can analogize real quick, for the DGens out there, in defyland, uniswap is an exchange,

Metamask is a broker and Ethereum is the clearing agency. Perfect analogy. That's what they do differently. Go ahead, Jake. Exactly right. Perfect analogy. And this is the problem with registering anything in crypto as any of these types of traditional categories of registrants under the SEC.

It's just not how the technology works. So the SEC shows up and basically says, well, Coinbase is a securities exchange. It is creating secondary markets for assets that are security. But Coinbase has not registered, and it is performing the service of all three of these separate entities in one, and that is not permissible. This is why Coinbase and all of the rest of the industry for so long has gone to the SEC to say, look, you keep saying to us, come in and register. Tell us how we can do that, given that there is no clearinghouse. The clearing operation is done by the blockchain. That's literally what the blockchain is for. And we don't have brokers who bring

orders to the exchange, customers just have their funds in custody with us and then they are trading on our order books. Is there some way that we can adjust to the securities laws to address your very valid regulatory concerns, right? This is not to say the securities laws have no place in crypto, but is there a way we can address those concerns without just having to become a traditional securities exchange and say that tokens, just like stocks, can only trade in this very highly restricted and frankly pretty uninteresting environment? And the SEC's answer has basically been No, we're not going to help you figure out how to register. We just don't like crypto and we're going to file this enforcement action against you.

That's what's happening this week. But, Trune, I cut you off. You wanted to say something? No, no, no. I just actually more had a question about the SEC selection of particular assets. At least for Solana and Polygon, they actually went into some detail as to why, right? Like, they had tweets from Solana and from Polygon that were like price related. and they had like spending certain funds on like things related to exchange listings and stuff like that.

So they had like a bunch of detail. But for some of them they didn't give any. And then there were some very large market cap coins that definitely didn't make it on the list, whereas some smaller ones did. So I'm just kind of curious like what do you think the, I saw all the the speculation that it was literally they just took a screenshot and whichever ones that showed up. That's what it looked like. They really looked like they went on page one on a coin market cap and they were like, What can we get our hands on easily that is probably going to be easy to demonstrate that, you know, their team tokens. But they, but they spent a lot of time on Solana and Polygon.

Like, it's very clear that Solana seems to have the highest risk in the sense of like they, they spent like four pages on it. I thought their argument against Solana was not super strong. Like most of the statements from the team are about technology. There were other ones where it's like, okay, the team is talking about the price. And, you know, with Algarand, they put the put the, the Algarand put on like the 97. for people who did the ICO? No, no, no, no. There's like all this stuff.

But my point is they had a lot of that, right? So I'm just kind of, you know, maybe, yeah, yeah, yeah. So I'm not, I don't know how to interpret that. I assume there's a function of trading volume. I think it's a function of trading volume, right? Like, Solana just trades so much that they probably were like, look, what's, what are the assets that do the most volume? If we really want to kneecap the industry and say, like, look, you need a delist stuff,

they want you delist almost everything. So they're not going to go after some small. ball, oh, you listed this little random, you know. But like Pocod, Avalanche, there are a lot of large caps that were not, we're sort of alighted that are traded on Coinbase. So I'm like, I was just like, to me that was sort of like, did they have good legal strategy or was this actually? Yeah, yeah, yeah.

It was like one of these things where I can't figure out like why that. So yeah, Jake, do you have any idea of like what the process was? I have literally no idea. It does not make any sense to me at all. I think I'm going to speculate wildly. It could just be they've had a lot of conversations with a lot of people in industry. Maybe there have been investigations. These are the people they didn't like.

And they wanted to send a message to them. Like I wouldn't put it past the enforcement division to be operating that way. I think that the challenge here is that it used to be, and it should be, that if an enforcement division at a regulatory agency wants to accuse someone of breaking the law, they actually accuse that person. of breaking the law and bring an action against that person so they can come defend themselves, right? So like who has the best information and the best understanding of whether Solana could have been, you know, sold pursuant to an investment contract at some time? Salonelaps probably has that, but Solana Labs is not a party to the Coinbase action and cannot as a matter of law intervene in the case to defend itself. And this has sort of been the SEC's tactic for a long time.

regulating by enforcement, but by enforcement against parties who don't even have the opportunity to defend themselves, I would tell you that I think it's possible that itself is a violation of the Administrative Procedures Act. And that's something that we're thinking about at the Blockchain Association, whether there's some way that we can get in and say, look, this isn't just unfair and unjust. It's actually contrary to federal law for the SEC to be acting this way. But otherwise, I have no idea your guess is as good as mine. So actually, how does that type of action against the SEC would coin be the one making such an accusation or like who who kind of counter sues?

Really good question. Don't want to give you or anyone else legal advice. Here's the best that I can say about that. Sorry, sorry. I'm not, I'm not trying to ask for, yeah, sorry. No, no, no. But Tarun will give you math advice in exchange. So. Yeah, I'm just kind of more curious what the process is if an agency does an action that is viewed as, you know, not according to law. how does that get enforced in some ways? Yeah. So what you need is you need a party that has standing, meaning the party has been injured in some way and the injury is traceable to the action by the defendant here at the SEC. And then that party has to go to court and then file a claim under some federal law that it says that action that caused them injury has violated. And in this case, I think it's

entirely reasonable to think, not legal advice, that maybe one of those projects that was involved in creating one of those tokens or some other company that maybe sees some harm to their business or to their reputation might be able to go to court and bring that type of action. This is actually something that a trade association is uniquely positioned to do because we, the blockchain association, have something called associational standing. This is now me teaching a law school course, which means we can bring lawsuits on behalf of our members without them individually having to be involved. So for that reason and for a bunch of others, this is This is something that we've been thinking about because our view is we can't just be sitting ducks waiting for Chair Gensler to pick his next target and then hope that it goes okay.

We need to be offensive and we need to start bringing our own lawsuits on fact patterns we like, on issues we like. In courts where the law is the way that we believe it is, and that's different in different places in the country. So this is something that you should expect to see and hear about more from us as time goes on. Also, as you pointed out, they have a finite set of resources. So you can be a denial of service attack. The fact that your Cardano bags went down, you might have standing to go and sue the SEC for making your Cardinal go down in value.

You mean my parents. So my parents' Cardona bags. Your parents' Cardinal bags. Your parents' cardinal. Okay. Sorry. Excuse me. Okay. So we got the Coinbase suit.

It seems like markets are shrugging it off. One thing that's very interesting to me about all the tokens that they're going after. I remember it was, I think, last month that there was the gray scale, Falcoin trust that they wanted to launch and the SEC told them, hey, no, we think Falcoyn's security. And that caused a bunch of folks

to start delisting or stop trading Falcoyne. Now, basically, the industry's on notice that everything is a security. And my assumption is going to be that we're just going to see noncompliance at this point. Is that just like, look, come on. If you name one thing at a time, maybe I'm going to go in there and like give you,

like, okay, maybe Falcoin's security. I haven't looked into it, you know, fine. But if you tell me literally everything is a security, I'm like, look, at this point, like, I don't have a business if you tell me everything is security, right? I'm not just going to trade Bitcoin. So it does feel like in a way, the SEC is kind of shooting itself in the foot if they want compliance from the industry, because at this point, everybody's just going to take the Coinbase tag, which is, okay, prove it. Proving the court of law. Like, I'm not going to delist this thing. If you tell me everything needs to get delisted,

then that's like more than half my business is everything besides Bitcoin and Ether. So at that point, you're giving kind of the economic reality of the industry no choice but to basically embrace noncompliance because of the extent to which you're trying to blacklist everything that people want to trade. Spot on. And I don't want me to talk so much, but I think you're totally right about that. I think one really interesting and maybe sad part of that story is what happened to Ripple and to XRP, right?

And think and say whatever you want about XRP. But in December 2020, Ripple was targeted with. that enforcement action. The action said XRP was and still is a security. And instantly, every single exchange in the United States delisted XRP, right? This became very controversial. But then, and I think the reason they did that, right, was exactly what you said. It was the SEC has spoken. They are saying that for us to be in compliance, we cannot trade this asset. We are going to cooperate and voluntarily comply with that instruction from the SEC, even though it would have been better to find out about it, you know, through some other way than in a federal

complaint, we're going to sort of play along with the SEC. That is not how the industry is viewing the SEC today and hasn't been for a really long time. I think that started actually with the SEC's case against Ishaun Wahi, who was the individual accused of insider trading at Coinbase. And in the Wahi case, the SEC identified nine different tokens that it said were securities and also said that they were trading on Coinbase, right, essentially accusing Coinbase of exactly what they finally put in their enforcement action today. And nobody delisted those tokens, including Coinbase. I think maybe three of the nine were delisted from Coinbase.

And that was, I think, the moment that the industry sent the message to the SEC. We just don't take you seriously anymore. We don't think that we are going to get any credit from voluntarily delisting assets. And we understand that really what you want is for us to delist. You know, for Coinbase, they have 240 assets. The SEC wants 239 of them, everything about Bitcoin delisted. And that's just not a way to have a functioning business in the United States. So I do think we're in this position, right?

It's not just the SEC saying we want to kill this industry. It's also the industry saying, look, if you're going to treat us that way, then we're going to act the same way toward you. So one of the things that I thought was interesting. I tweeted about this a little bit earlier was our old friend Eos. If you remember EOS, you know, crazy ICO, I think we talked about it on the show last week. they ended up getting a lawsuit from the SEC back in 2019, and they settled that lawsuit for, I think, $25 million-ish, something in that ballpark.

And as a result of that lawsuit, Block 1, the issuer of EOS did not register EOS as a security. EOS continued to trade. And that seemed to be some kind of admission from the SEC that EOS may have been a security when they were doing the ICO, like there were some security issuance type properties of the thing, but basically at the time that they reached a settlement, that was no longer necessary.

And so the SEC did not ask them to register and basically said, great, it's a closed case. It seems very strange then that if Eos, which is a layer one blockchain, which does all the same bells and whistles, all the stuff they were describing about why Solana is a joint profit-making enterprise because Solana burns fees

or Solana is a layer one that has this much TPS and blah, blah, blah, and they talked about the technical properties. All those things are obviously, also true of EOS. So if EOS is not a security, then on what basis are all of these other L1's security? Solana, Ada, near Adam, why are all of these securities when EOS is not? That seemed, I mean, I know that there's no, what about that guy? You know, that's not a legal defense, I guess.

Or is it? That's not a legal defense, right? You can't say, like, well, that guy, you treated them differently. Okay. I'm getting a shaking of the head. What? Yeah. I love the idea of a court system where you do that, though.

You know where you can enable that? On a blockchain. Errigon court. That's where you can finally point at somebody else. What about that guy? And that's a robust legal defense. Well, there is an opportunity to clarify all of this, right? You're basically saying, hey, in EOS, the initial sale of the token was an investment contract

between the organization selling the tokens and the people buying the. tokens from the organization. But the tokens then were not securities, right? This is obviously a big, you know, conversation item in Ripple and in other, you know, circumstances. But the potential answer is also sitting in front of us. And I don't want to keep on trying to get Jake to drive back to the market structure bill that's proposed. But there are solutions that are being discussed to actually answer these exact type of questions and to create clarity for everybody about how things work, how they should operate, and what the framework is to regulate them.

And so, you know, Jake, was there anything in the market structure bill that actually would have answered Hasib's exact question? So yes, let's, so let me give you my quick EOS take, and then let's talk about the market structure bill. I think what's important about EOS is it was a different SEC that made that decision, right? That was Chair Clayton's SEC. And Chair Clayton's SEC, which we all complained about nonstop back then, was basically like, crypto, not on my watch.

We're not going to do anything to help this market. We're also not going to get blamed for doing anything crazy. And that's why I think in the EEO settlement, you saw them sort of split the baby, right? It was like, yeah, there was a security's violation here. But once the network was fully functional, we'll draw a line and we'll say the ERC 20 token was a security. But we're going to let the people who are doing the work on that blockchain continue doing their work. We don't see any of that from Chair Gensler's SEC, right? because his take is not on my watch.

His take is on my watch, I will destroy everything in this industry. And that's why you see something like, honestly, if I was Filecoin, I would be most upset about this because they, if you remember, did a SAFT. And they did it exactly right, right? Unlike many other projects, they did the SAFT. And then they said, we are literally not releasing this token until our work is totally done. Where so many other people did the SAFT and five minutes later with no functioning network whatsoever distributed the token.

And I think, you know, if you're Filecoin, you're looking at. how everyone else has been treated and then getting file coin listed in these complaints, and you're pretty upset. So that's my point there. The market structure bill is super important for the following reason. It solves all of these problems. Now, the bill is very early. It came out on Friday. I still have not had a chance to read through the whole thing. It's probably going to take a long time to leave its way through Congress. I think it's going to take a long time to get into its final form. But the idea is to come up with a registration and compliance regime, that actually works for crypto, right?

The one thing that the SEC has refused to do all along. So what it does, at least in its initial form, is it creates a framework where you can create a token, distribute that token, both to, you know, insiders, you could say, to investors and to team members, to employees, to founders, to affiliates and people like that, have reasonable restrictions on those tokens, but also be able to create public markets for secondary trading of those tokens before you have achieved some magical sufficient decentralization test that none of us even understand after years of thinking about this. And that is the right way for us to solve these problems, where again, you address these very

valid concerns of maybe the creator of this token has privileged access to special information that the purchasers of the token should also have before they decide to make an investment decision. That's a very reasonable purpose of the securities laws. If you're not an anarchist, I say that with no judgment. But if you're not an anarchist, right, that's like a pretty reasonable regulatory goal to achieve. Or for these secondary markets, right, the bill sets forth a registration framework for someone like Coinbase that says, look, we're going to address these very real concerns about market integrity. We don't want you, Coinbase, operating an affiliated market maker where you are wash trading on your exchange and you're not doing any market surveillance to make sure there's not

other types of manipulation happening on the platform that you are providing to U.S. persons, but we're going to do that in a context where you actually can register and you don't have to just abandon the benefits of decentralization in the underlying technology that you're building on. So I think this is the beginning of a probably fairly long process that will ultimately yield something that works for the industry here in the U.S. Actually, maybe just like a timeline was, if you had to expect a – on how long the bill would take from now to ever, you know, passing in some form, versus the time the entire court case would take between Coinbase and I see, you know,

tortoise and the hairstyle, which one, which one is, which one makes it to the finish line. What a great question. I'm going to say the market structure bill. Maybe I'm just being optimistic, but that's my hope. I would say that Coinbase case takes three years, at least in the district court. I would hope that by the. end of the next Congress, we've got market structure legislation in place. I think it's a heavy lift right now. It's a very serious effort. There are two separate committees in the House that are working jointly on this. That's very rare. And we may be heading toward a markup this summer, meaning they're going to make revisions and then vote this thing out of committee and get it to

the floor of the House. It could pass the floor of the House. The challenge in this Congress will be that the House is controlled by Republicans and the Senate is controlled by Democrats. And it's very hard to get those two chambers to work together on anything. And unfortunately, Senate Democrats have a much more skeptical view of crypto in general. So if this does get voted out of the House, but predominantly supported by Republicans without a lot of Democratic involvement, you could imagine it just sort of sitting around in the Senate until the end of this Congress. And then we have a presidential election and a whole new Congress, and who knows what can happen in 2025. So that's sort of what we're looking at. You know, fingers crossed that we can get this over the finish line,

this Congress before 2025, but it wouldn't totally shock me if we're still talking about this two or three years from now. Robert, you made the point earlier that all the stuff that's going down now of the SEC going after Coinbase and going after Binance, it does galvanize people about crypto in a way that I think they previously were probably more aloof. Jake, do you think it's not likely that that's going to change the calculus? I mean, I think what you described was roughly what I heard about the bill, you know, last week is that, yeah, you know, it's nice. Obviously, the crypto industry likes it. It's much more amenable than anything else we've had on the floor that's realistic.

But, you know, Congress is Congress and like nothing is going to get done in any time soon. Does it not seem like maybe this changes that? I think this changes that. And I think I think it changes it on the Democratic side. So, you know, we've been seeing. over the course of the last year or so, a lot more resistance, especially to the SEC and to Chair Gensler. We've seen a bunch of, you know, Democratic representatives and some senators coming out to question whether the way that Chair Gensler is operating is really the right way.

Representative Richie Torres is one example. He's on the House Financial Services Committee. He's taking a leading role in pushing this forward. He's been, you know, very, I would say, outspoken in challenging, you know, Chair Gensler, even though Chair Gensler was appointed by a president of his own party. And I think that shows that it's not just the industry that's unhappy with the SEC and everyone else loves what they're doing. There's a lot of skepticism about the SEC driving innovation out of the country, especially when you look at Europe and you see Europe moving forward with comprehensive regulation. No American likes to look at Europe and say they're doing this better than us and we're going to lose out to them. So I think there are a bunch of reasons why

this is going to get very serious, very fast. I do hate to appeal to Twitter, but one thing that was very clear for anybody who's on Twitter was that, no matter what Twitter account you were looking at, this was incredibly unpopular by the SEC. And almost all of the energy was rallying behind finance yesterday and then Coinbase today as feeling that this is just an unjust way to treat a company that everyone recognizes is doing something genuinely new and difficult in an environment that's hard to know what you're supposed to be doing when there's so little clarity afforded to companies in the U.S. Well, it's because it's very clear that We're not trying to bring them within a regulatory perimeter.

They're trying to murder them outside of the perimeter. And to anyone who's observing this, that doesn't seem like the correct approach. Yeah. Okay. So let's zoom out. So I think we've built a pretty good understanding of what the facts are in front of us. What happens now? We're in this new world.

The SEC is thrown down the gauntlet. Bynes is on notice. Coinbase is on notice. Obviously, Binance has this whole process playing out that. will happen in the courts. Coinbase is going to take years. What does this change? What does this change about how crypto is done in the U.S.?

Does this mean that things are going to go overseas? Are people still going to be able to found companies here? Are token projects still going to launch here? What do you guys think happens now? First question. Who is the next on the assassination list? You know the meme with the Grim Reaper going to each door? Like, who is the third door?

I kind of don't think there will be a third door. I feel like they're going to have their handful. third door is uniswap, then you know the answer to your questions. That is my thought of experiment for you. Defi is the one thing that they have not gone after yet. If the third door is someone like that, then like, that's your answer. That would surprise me. They are going after Defi.

They're just not doing it in enforcement. They're doing it in rulemaking, which is a whole other conversation. But they basically have this proposal that's pending. They issued it last, I want to say last February. They just reopened it maybe two months ago. that expands the definition of an exchange under the federal securities laws to capture like basically everything under the sun. And that would certainly capture defy. And I feel like that's how the SEC is trying to go after defy. I honestly, I don't think that there's a third coming from

the SEC. If there's anything else, I would say it's the third case against finance. And we didn't talk about this too much. But, you know, the CFTC started this. There was a lot of content in the CFTC complaint against finance about terrorist financing and sanctions violations. That stuff doesn't just disappear because we stopped talking about it for a few weeks. And I think, you know, the SEC complaint may just be leading to something more serious and may be criminal. So I don't know anything that you guys don't know. I'm totally speculating here.

But I think if we're going to have another big news day where we talk about a federal court filing, that would be sort of what I'm looking for. The joy of this podcast is it's all about speculating in some sense. 100%. We are the speculative podcast. In the spirit of not giving legal advice, which we also don't do with this podcast, if you were talking to an entrepreneur who's starting at the foot of the mountain today and thinking about what they want to do, what would you tell them about what they can and can't do in America?

I would tell them that I need an engagement letter that has my fee schedule set forth. No, look, I think what I would say in general is you have to understand that if you're going to do business in this industry in the U.S., you are putting yourself in a position where odds are, you know that the regulators do not agree with you. And you have to have the stomach for that, right? There's nothing wrong with that. There's nothing wrong with saying you have a better view of the law than a particular unelected bureaucrat

who happens to be in leadership at an agency today. But you do have to have sort of the guts to do that. And you also, like any startup founder who sort of, you know, is willing to chew glass and run through a thousand people telling them that what they think is never going to work and that they're crazy, you sort of have to do. that, but you have to do it from a legal and regulatory perspective. You just have to be extra careful because you have to take these things extremely seriously and you have to find

extremely good lawyers who can help you understand. Where can you, in good faith, run your business in the U.S., and where do you have good faith disputes with regulators where you believe strongly that if you end up in court, you are going to win? And then you have to, you know, feel confident in those decisions. If you don't have sort of the guts to do that, then I I think being in crypto in the U.S. is going to be pretty hard because you're going to hear from a lot of people. You're going to read Matt Levine every once in a while who's going to say that everything in crypto is securities fraud, and you've just got to be sort of ready to go through that. That said, I would tell people, again, not giving advice, but I do not think that you want to just flee the United

States because currently the policy picture is a bit challenging. I think if you want to launch a successful product or service in 2023, you want access to the U.S. markets. And you are more likely to get that in a more meaningful way if you stay here and you again, position yourself as a good actor doing this in good faith in compliance with federal and state law to the extent that you can be and trust that you will be able to work it out rather than just trying to run an offshore operation instead. At least that's what I tell people. But that's what Coinbase was, right? Like Coinbase from the perspective of an outsider is doing everything in as much good faith as possible. They were building in this industry, you know, four administrations ago,

you know, where all of this was nascent and, you know, it's evolved into this system we have today, starting from almost nothing. And they consistently, you know, tried to operate with the best of intentions towards their users, towards, you know, government towards, you know, the system as a whole. And unfortunately, they're on the losing end of, you know, of regulator saying that their business can't exist anymore if, you know, the court were to side with them. And that's, you know, a good actor being targeted. You know, finance, for what it's worth, I don't think is as good of an actor. You know, we go back to who's you listed ripple, you know, Coinbase listed ripple. I don't think finance did, right?

I think ripple still trades on finance, right? Coinbase has always tried to, you know, play by the rules as they understood them. They've always asked for clarification on the rules. And, you know, being the good and honest actor, in this case, I don't think has worked for them. With all that being said, Robert, I mean, Coinbase is still worth $12 billion. So it's not as though Coinbase has flushed down the toilet as a result of this. I mean, they're down maybe 15% their stock price since this stuff dropped from the SEC. But it's not actually, it's kind of traded in the same.

range roughly that it's traded over the last six months. So I don't think that this is a death knell for Coinbase, although it's possible that, you know, if this case works out against Coinbase in the worst way, that this could be beginning of the end for Coinbase. But it's very clear, as we were living to earlier, right now the market is not really giving credit to the SEC, that they're going to prevail on,

ostensibly what they want, which is for Coinbase to shrivel up and die and go away or only be, a Bitcoin brokerage, basically, it seems like the vision that they have for Coinbase. It doesn't seem the market believes that. Because if it did, this thing would not be worth $12 billion today. I hear that. And it's still an incredibly valuable and incredibly important company.

And I think that's why they are going to be a catalyst for all of American legislative and regulatory policy to figure this out. Because they're the biggest exchange. America with the best of intentions. And they've essentially been put into the position of being the one at bat. And I, I think it's going to be good for everybody long term. But we'll see. Yeah. Actually, are there any other examples of say like in maybe a different regulatory portion of the law where like a regulator tried to kill an industry leader who followed rules and like the industry moved offshore completely.

Because like I could imagine like there must be some sort of historical type. The FX market and I feel like a bunch of financial markets have moved offshore. I mean, the Eurodollar market is kind of the same story. But your dollar kind of came back because the futures are all traded here. So your dollar is funny. It started outside and the U.S. was like, we're not going to let these fucking Europeans like own this thing. So we're bringing it back. No, no.

I mean, there's literally a quote from a CFT. commissioner about this a long time ago. But I guess my point is more just like there's like that's like sort of a weirder case. I'm just more curious if there's like some commodity that's ever been like the US was like we don't want like, you know,

like shale gas. You could have imagined that it could have gone the way out of like hey, it gets kicked out. But I'm sure there must be something. And I'd love to find an example and just like compare the historical see if there's a historical comparison. Yeah.

At Turun, if you know of a good example of something that was pushed out of the U.S. because of regulation. We're running up on time. Jake, I just want to end with one more question. One of the things that I think a lot of people are banking on is that, so right now, as you mentioned, there's basically two years left in this administration. Very likely there's going to be an election. We don't know right now it's a toss-up, roughly 50-50, if it's going to be Democrat-Republican. There's been a lot of discussion about Chair Gensler's term.

I don't totally understand how completely. it works because commissioners, my understanding is that commissioners of six-year terms at the SEC, Gensler, Chair Gensler has said that, or it's been leaked, I don't know exactly that he wants to go for Treasury, Secretary of the Treasury, as opposed to chair of the SEC. How does it work? Does he continue at the SEC, even if there's a new administration? Does he roll out? Does he become a commissioner instead of the chairman? How does it work in a new presidency? So you're right that there's a, I think it's a five-year term, but then they can extend it after the five years up to maybe another 12 or 18 months.

So I think, yeah, the maximum is something like six or six and a half years. He took his position in 2021. I think that means technically he could be with us past 2026. That said, often when there is a presidential transition, even if President Biden is reelected, there's always a transition before the, you know, the next term begins. where the cabinet positions and then also usually leadership of the agencies gets revisited. And there's one theory which is, like you said, Chair Gensler has been doing this because he wants to be Treasury Secretary. I don't know if he's ever said that, but that's certainly, you know, the view of basically everybody in D.C. is that that that's really what he's looking for.

And that he's not going to get that from President Biden, which might mean that in the transition, he decides, I've made my mark. I don't really want to stick around to lose all these cases that I brought. I already got on Squackbox when I filed the comp. which was really what I wanted, and I'm going to go do something else until, you know, the next president shows up who, you know, might want to appoint me to the, to the position that I really want. So I would think that maybe in 2025, Chair Gensler moves out and we get somebody new, whether that's someone better, who knows. We all said that anyone other than Chair Clayton would be such an improvement. And here we are, what would we, you know, what would

we give to get back Jay Clayton as chair of the SEC? So I'm hard to count on us just sort of surviving and outliving Cherinsler, but I mean, eventually his reign of terror will be over and we'll have somebody else in leadership there. Okay. That was not exactly the most reassuring. Yeah, that was a relatively small consolation, but whatever. I'll take anything I can get right now.

All right, I got to find me some sugar-free Red Bull because I know. I get me through. Yeah. We'll see if we can get that sponsorship lined up. But for now, I think we have to sign off. Thanks, everybody. And we'll be back next week. Thanks for everything.

Thanks, everyone. Thanks, everyone. Thanks, guys. Thank you. Thank you.