Unchained - Why the SEC Paused on Its Innovation Exemption for Tokenization: Bits + Bips

Episode Date: May 28, 2026

Citadel and SIFMA lobbied to slow tokenized equity rules. Arjun Sethi calls it 'corporate plumbing.' Chris Perkins calls it a bond future moment. --- Thank you to our sponsor! ⁠⁠Coinbase One⁠⁠: Get 20% off the first year of your Coinbase One annual plan at ⁠⁠coinbase.com/unchained⁠⁠. Heads up! If you haven’t yet, be sure to subscribe to Bits + Bips, since the show will migrate there in a few weeks. Follow us on ⁠⁠⁠⁠⁠⁠⁠Apple Podcasts⁠⁠⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠⁠⁠YouTube⁠⁠⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠⁠⁠Spotify⁠⁠⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠⁠⁠Unchained⁠⁠⁠⁠⁠⁠⁠ and wherever you get your podcasts. ---- Kraken has spent $2.75 billion on acquisitions in the past year, and co-CEO Arjun Sethi says the point is not a bigger exchange. The goal is a 24/7 global operating system for capital markets: spot, derivatives, payments, tokenized equities, and custody under one regulatory stack. Sethi makes the case for each move, from REAP's tripling revenue in emerging markets to Bitnomial's CFTC trifecta, and says what will actually drive Kraken's next three years is not trading volume. The conversation then turns to the SEC's paused innovation exemption for tokenized equities, why Citadel and SIFMA showed up to lobby against it, and whether direct listings on crypto rails could eventually replace Wall Street's IPO machine. The episode closes on a question nobody saw coming: what Pope Leo's first encyclical on AI and finance has to do with the Bitcoin white paper. Hosts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Austin Campbell (@austincampbell) — Founder, Zero Knowledge Consulting; Adjunct Professor, NYU Stern ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ram Ahluwalia⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, Co-Host, CEO of Lumida ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Chris Perkins⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, Co-Host, CEO of 250 Digital Asset Management Guest: Arjun Sethi - Co-CEO of Kraken / Payward and Chairman of Tribe Capital Learn more about your ad choices. Visit megaphone.fm/adchoices

And the fact is, is that, you know, some of these companies have spent, you know, hundreds of millions, billions of dollars to really own that market structure. And so when you're an incumbent and rules come around that can disrupt you, you probably don't like it. You know, I grew up with a lot of these guys. And I remember sitting down with one of them at lunch. And I'm like, dude, like, why are you so against, you know, Clarity Act, blah, blah, whatever? And his response was, bro, do whatever you want with your silly little tokens, but don't mess with my equities or we're going to have a problem.

Welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro. And today, I think we have an excellent guest for that. But before we begin, a quick word from one of our sponsors. If you've been loving Bits and Bips, don't forget that the show is transitioning to its own feats on X, YouTube, and your favorite podcast player. If you're not already subscribed to bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and MacroMeets crypto breakdowns. Bits and Bits will only be on the

Unchained Feed for a few more weeks. So subscribe today to be ready for launch. You can get all the links at Unchained Crypto.com slash bits and Bips. So as always, I'm your host, Austin Campbell, high scholar of zero knowledge group. Here with my co-host today, Chris Perkins, the golden hand of 250 digital asset management. To the best of our knowledge, ROM is currently somewhere at a black site being interrogated for his negative comments about chat GPT. But he should be back next week. So today's guest, who I'm very excited about, is Arjun Sati of Payward, aka Cracken. And for our first segment based on that, Arjun, we wanted to talk a little bit with you about Cracken.

your M&A and the overall push for the platform. So let me frame some of what we've been seeing and then we can talk about it. One, there's been a significant amount of M&A. There was Reap, there was Bitnomiel, there was Magna, there's Ninja Trader, and there's small exchange. That is adding a significant amount to the platform. We've got X stocks launching. And with Bitnomial, I think you were the only crypto-native CFTC trifecta now, right, like an FCM, DCM, DCO. And then from a platform perspective, Fedmaster account, which I believe was granted to your Wyoming entity, but correct me if I'm wrong. That's right.

You have a NASDAQ partnership. And your overall platform now has become one of the more complete ones in crypto. We've seen valuation moving up and down as a result of this, allegedly $20 billion, though you don't have to comment on that and an IPO coming. But what I wanted to start with here is this is roughly $2.75 billion on M&A over 12 months. If you had to do all of this over again, which acquisition would you defend the most? Like which one was most strategically important for Crackett? Well, I want to answer that question directly immediately.

I'll start off with the basics. So it's a payword. I think the way to think about at least how we view the world and what we're trying to build is like while we've done the string of acquisition, it's a deliberate stack. So the binomial is the only crypto-native CFTC trifect as you mentioned. So exchange clearinghouse brokerage. And if you just take a look at that company, also what we've done in any market, we've essentially had a decade plus of regulatory work absorbed into now this one transaction. Then REAP, as you'd mentioned, has a stable coin payment and card issuance layer.

So for the regions that are actually growing in a lot of these emerging markets, so Asia, Latin America, Reap, for instance, they triple their revenue in 2025. It's pretty, you know, it's kind of unimaginable when you think about what's happening in the developed markets. The Ninja Trader gives us the active trader distributions. surface. Small exchange, which is another one that we did small account derivatives wedge. Then Magna, we did token management, X-Dox. We did that through an acquisition of a company called backed, but we also had done a joint venture with them to get this up and running. And that one over the

last eight months has been roughly around, you know, 25 billion in transactional volume. To be clear, we don't think like that's success. We just think that's the beginning. And so if you put those together, the right way to read payword in 2026 and beyond is not, hey, you're just a bigger crypto exchange. This is how we think about building our view of what the world is going to look like as an operating system. That's 24-7 global capital market, spot, derivatives, payments, custody, tokenized equities, federal settlement, all under one jurisdictional licensing stack as well as a global stack for just one user and beyond. That's a very difficult. That's a very different, I would say structurally than what a lot of people have been used to from other

crypto companies where Coinbase is, you know, great company, but they're fundamentally institutional first and retail first U.S. domestic. And then Robin Hood is, you know, in my opinion, just a retail brokerage with crypto bolt and on. And so while they're great companies, no one has really focused on what I'd say the foundational layer of assembling, you know, what like the market hasn't seen yet. And so the market hasn't repriced these types of things, but the just haven't seen it. All right. So let me start by drilling in on something you said there that I think is going to be interesting for a lot of this audience because they're probably somewhat US-centric. You said REAP is tripling revenue year over year, and that is mostly focused on, I would imagine,

emerging market cards, not like US card distribution. What are you seeing there? Like, what are the trends? Why are people using things in that space and what is driving that growth for people who are unfamiliar? Yeah, you know, I think it comes down to basics and we kind of forget about it, which is you don't have access, right? So if you think about where your assets may lie and how do you be able to get access to them and get access to capital and then to be able to borrow from them, a lot of the biggest markets where we've seen, even stable coin adoption, which is what we talk about a lot, but people forget where they actually exist is, you know, you think about, and it's similar, by the way, this is similar to X-docs, which is start thinking about like the trader in Legos. or someone who's in Buenos Aires or Manila or Karachi, like the list goes on. This is the same for like Southeast Asia, Vietnam, Cambodia,

where REAP, a lot of their distribution and flow comes from these markets. And so when you're a small, demeanor business, if you're a company, if you're even a new fintech that needs access to, access to, you know, card issuance, who are your choices? You don't have 50. You've got like maybe three.

And so REAP was one of those. And they've been scaling up. Again, also it's profitable since day one. Their story is very much in line with the way in which we built our company, which is bit by a bit and mile by mile, just getting larger and larger. And I think at least the Western markets or Western investors have a tendency to miss actually what's happening outside of our borders in places like Latin America, Africa, and Southeast Asia. And those are the places where defy, stable coins, X stocks are growing the fastest. if you look at it if there's a pure access and distribution standpoint.

So we've talked about that a little bit in the past with regard to the distribution of U.S. dollar stable coins as well. But it's interesting to hear about the overlap now hitting, call it traditional payments markets through the stable coin vector with REAP. I want to go to another thing we've talked about a decent amount, which is call it tokenization of assets overall. So you've said in the past that tokenized equities won't, quote, open the floodgates for institutions, but you're also very optimistic about X stocks. So I wanted to ask you, who are you seeing as the target audience there? Is it the same people currently using REAP? Like, what is the distribution play? So I think the, I think that, so let's just take on-chain equities. And hyperliquid. That's probably a good sort of segue. I think the two markets to watch are not what people think. You know, spot tokenized equity is about what, 1.7 billion in wrappers. And I think they're growing at like, you know, 13.6x. You know, a lot of people have spoken about this. You look at hyperliquid. You know, the open interest is already at like two and a half bill. And they're continuing to grow. Then you've got trade X, XYZ. I think they had done like 22 billion in volume, right? And I think this is a lot. And I think this.

is something that you guys have mentioned, other people have mentioned. And so, and where is this volume? Tesla, Nvidia, Apple, Amazon. I think one thing to note is that there's two separate parts of the market. There's what I call a shadow stock exchange operating on permissionless rails. So that's what I just mentioned with, you know, hyperliquid. But what I think it tells you is that the actual demand isn't necessarily the custody of the underlying. It's, do I have access? Can I get exposure, can I get leverage to it, to single name U.S. equities from anywhere in the world? Now, you take that to a more extreme, even the spot tokenized equity layer. This is a real product for a real user and more and more use cases have to be built on top of that. And so I would think

the volume signal is more that it has just started. And then the killer use case, for now, has been perps. And people want to hold these assets. So for example, even for us tokenized equities, The way X-Dox works is not just on the crack and platform or on our unified rails. It works with ByBit. It works on Tron. It works with B&B. It works on Solana, even with decentralized exchanges outside the United States. I think what's really important is that where are all these demands happening?

And they're, again, all in these emerging markets very similar to stable coins. And again, what do they want to be able to do it? They want to be able to invest in it. They want to be able to store it. They want to be able to get yield on it. they want to be able to have access to capital from those assets, just like we are used to here in the United States or any other developed markets. And that's the way to sort of think about where this demand is. So it's not institutional first. It's always been, I think this is the part

where crypto kind of forget, like the thesis of why we started this, is that access and demand are the biggest issue in a lot of these markets. And so that's where we're seeing the largest growth. And I think we'll continue to see that. And at a certain point, it eclips and moves at a faster pace rather than linear because adoption and multiple fintech and multiple platforms and multiple infrastructure supports, you know, a style of the underlying. We're hoping that's us and the way we built our approach. But that's the way to sort of, I would say, frame what you're seeing worldwide. Arjun, derivatives to me seem so much more interesting than spot. Generally, the volumes are much more significant. The profitability is much more profound.

You don't have to deal with custody. It's synthetic in many cases. You just bought Bitnomil. You have that entire ecosystem, which is really interesting, onshore regulated. You have the offshore solution as well. And then you've got hype out there

on doing the defy thing. Can you talk through how you think liquidity evolves? Does it stay in like the hipes of the world is to stay offshore? Or do you think five years from now, you guys are just monsters onshore with U.S. regulated liquidity. Look, I think if you look at a worldwide volume, right, it's derivatives and perks.

I like that's what drives, you know, what is it now, like 95 to 98% of all volume. And the reason why it happened, and you guys know this, again, it's just as much as I do, is it's permissionless. Yeah, it's, it's, people have access. And it doesn't really matter if there's underlying or synthetic. The point is that it's a demand for a product. And once you have demand for a product, then you can look at the, the stack and say, okay, great, well, what are the things that we need to build on top of it,

or underneath it in many cases, right? And so you're seeing people talk about, like, so for example, we started with X-Dox offshore, and then we've been in the process of building it onshore. But what's more important is we already have it in Europe and you see the rest of world demand. Again, I'm going back to demand the U.S. pathway today that people talk about is, you know, DTCC Rails meeting issuer consent under whatever the SEC ultimately will less. I definitely think that's a slower path, but it's probably the right one for institutional. And the reason I'm mentioning this is that when you think about volume and large amounts of capital moving, it usually happens from what I call mid-market to institutional players.

What you're starting to see now is that you see a lot of that type of volume also happening rest of world with, you know, synthetic or perps or non-underlying, you know, different duration or maturation in some cases. And so, you know, I'm not sure what will happen over time. If you believe, you know, Africa, Latin America, and Asia are some of the strongest markets, I would actually presume that they might be greater than are equal to what we think about institutional flow and derivatives may look like, you know, in the United States. So yes, we're building out these products for ourselves and our customers in the United

States, but we're also building these products outside the United States for those jurisdictions because we know those are also growing markets. And in some cases, they may eclipse what you see in the US in terms of volume. Hey, Arjun, aside about the progress you guys have done a crack. I've been a shareholder since last summer for your funding around. Some bias here, full disclosure. Yeah, for the good, good, good disclosure. I didn't know you were. We got out the 12 billion valuation. So I love that Citadel got in two once after. It's when you can front run Citadel, it gives you a special concept. They can tell three people about that might appreciate it. They front on me on all the rest of the trades. So it's probably a wash at that point. Question for you. If you're to fast forward

three and look back in time and say, what drove success for Cracken? Clearly, you've got a number of offerings. Your folks at international. You've got exposure to Ninja Trader, which I love that acquisition. stable coin, what's going to be the number one driver where you stand today, right? Was it the bet on international? Was it the bet on the active trader and that maniacal customer focus was a stable coin margin? What would be the number one driver of growth? Look, you know, we, I feel like I've said this many times and I try to be as transparent as possible even externally. there's two sides of what I'd say any financial services business.

There's one side which is, you know, what are your products that drive volume? And then what's your take rate on top of that? Okay. And so we can talk about spot, margin, futures, perps, etc. Then there's another side of the house, which I think a lot of people forget about, especially in crypto, is your assets on platform, your assets under Cresti, and then what are the types of yields that you can provide to your customers. Now, when you think about the permissionless world of what you can do, right, we think

about, you know, earning more yield on your defy, your stable coins, fiat, etc. When you've got the full financial stack and the regulatory stack that I mentioned before, the question you got to ask yourself is, okay, what are all the products that you want to be able to offer your customers? And then how do you move up and down the stack on what we call AOP, sort of assets on platform? Right. So there's consumer retail, which is a approach that some people take. Then there is what I'd call professional traders, which is what we,

That's how, you know, Cracken and Payward was born. And then you've got the institutional side. But again, what's more important is that once you've got the tokenization of any asset on one rail system, people want to do risk management, they want to borrow against it, they want to be able to hedge. There's just so many different interactions they want to have. And so part of having the volume side of the house being supported by AOP and vice versa, is that they feed into each other. So when you think about growth longer term is all of these markets that we just mentioned that are emerging, they care more about AOP in the long run than they care about volume.

Because volume is already a part of their blood, but it's more okay, well, where do I store those assets? How do we get extra yield on those assets? And then how do I pull those assets for whatever activity I want? And so, you know, as as ridiculous as this might sound is that, you know, crypto rails, liquidity and movement of capital, a lot of this just compresses, you know, intermediary. down to zero in many cases is how do we provide these products and services to those customers? And so a lot of what we're building are banking and financial services products. And so you'll see us do more and more of that. So the reason why we elevated the payward brand, which is we were always payward, but Cracken was one of our products, our star product, and now it's Ninja Trader. And now X-Dex is becoming larger, is our payward infrastructure in Rails is actually going to elevate to different products that we're going to start offering.

So you will see payward asset management. You will see payward banking as a part of that push. So you talk about AOP assets on platform. Obviously, we just went through a pretty brutal battle in D.C. Coinbase was very outspoken around what they wanted vis-a-vis stable coin yield. The banks run the other side. How do you think about that? And as that, you know, assuming that we move forward with that bill, is that going to help you hurt you?

Do you have a view on, you know, your your question? for AOP in the context of clarity? So I think one thing that's important to note is we, what's great about crypto is it's global. So we started off global day one. So Europe, UK, you know, we say rest of the world, but what's important, you know, Brazil, Mexico, South Africa, now we have our viral license.

So UAE plus those markets, Southeast Asia, and India will be a part of the push as well. Look at all of these markets. and the speed out which start growing. They all have different rules and regulations. In some cases, they've already moved forward. So obviously in Europe, we've got Mika, but Australia, Canada had the sort of the,

what I'd say, the same focus and similar outcomes to where we might land here in the United States. And some people are watching the United States. Is, yes, the banks in the U.S. have always been, what I'd say, have monopolized a very specific set of products, and they've always wanted to protect yield. Now, I'm not saying that's good or bad, and I'm not going to make an argument on if it's good for the financial ecosystem or leverage or debt or deposits in the United States. But what I think is more important is outside the United States, there's been a lot of fintech applications and fintech companies that have gotten and scaled very large.

New Bank is a great example. There's a company that I co-founded called Capital, the 10th largest bank in Mexico. And then you take a look at Africa. You do the same thing in Southeast Asia, China, et cetera. the list goes on. What has made them innovative to be able to grow at speed while still having banking products is that they're allowed to build software. They're allowed to innovate and they're allowed to go into other markets where they can cross, almost cross-collateralized products. They can just build other value-outed services for their customers, including payments. When I think about crypto, it's kind of very similar here, which is do we want to take deposits? The answer is yes. Will we become a bank in some of these markets? The answer is yes. Will we do it in the United States? the answer is no. But we did have the SPDI in Wyoming to be able to do custody. And so I think in each market, the regulatory stack is going to be different depending on what you want to be able to serve to your customers. And so, you know, I don't think it's a secret, but like the strategy is

we will be, you know, giving banking and financial bank products. We will probably be a bank in some of these other markets because we have to while we have our money license, while we have our capital markets licenses depending on, you know, securities or commodities, depending on each jurisdiction. And I think that's going to be natural. You're going to see convergence on both sides. We can do that outside the United States because the rules and the regulatory posture allow us to do so. All right. So let me hop in here and say, this sounds like a pretty interesting global strategy. You're putting together both a product stack in terms of what you can offer, a regulatory stack and distributing across the globe.

So one thing I like to ask people who are running these companies is if it goes wrong, where does it go wrong? Like what keeps you up at night as you think about these things? And where, if anything, do you see problems in the space? Yeah, I mean, this is an easy one because we've seen this for, you know, 50 years is risk management, right? Leverage. When you hide leverage in the system and it's not transparent, it's hard to risk

manage. and then you don't actually know where the risk or the underlying risks lie. We've been like really purposeful around how we think about lending, margin, access to capital, where it is just why we have fully collateralized programs. We know where the assets are at any given time. And for us, you know, if there's a de-leveraging event and we know exactly what to do, we've been doing this for 15 plus years. And we, you know, our loss ratios are essentially near zero.

There's a reason for that. It's, you know, unified risk engines, unified, systems, unified collateral, and movement of that capital. I think this is where a lot of people forget that, you know, just because you have a, you know, 20x leverage in a product with like, you know, hyperliquid. That doesn't mean it's right or wrong. It just means like that there's a certain amount of risk in these types of products. And I don't think regulators, the aspect of having regulators and policy and government or even central banks involved in some cases is like, well, how do we educate them on products? How do we educate them on leverage? But how do we educate them on making

sure that as we're building out the stack, especially maybe we can do it right this time versus what you see in TradFi. As Tradfai, you don't know leverage upon leverage upon leverage upon leverage and what that actually looks like, right? Because the definition of equity just means that someone is putting this term on a capital into something and you put leverage on that. But that equity might have a leverage behind it as well. And that just continues to compound. And that's something I think crypto can help not necessarily fix, but bring a lot. a lot more transparency into. And so when people talk about privacy, I kind of roll my eyes, which is like, well, do you

really want privacy in the leverage world? And I think the answer is no. All right. So speaking of privacy and complexity, let's move on to what's been going on with the SEC, because this is probably directly relevant for X stocks as well, which is there was a report out, I think originally from Scott Patterson at Bloomberg, that the SEC would be pushing forward with an innovation exemption. And then a day or two later, it came back that the SEC has paused.

It's innovation exemption. Allegedly after pushback from a number of different parties, including some Tradfai groups, Citadel, SIFMA, J.P. Morgan, some legal and policy people asking questions as well. It seems like the sticking points were the following. One, a draft provision that would have allowed third-party synthetic tokens, aka rappers without the consent of the underlying company. And two, some questions that quite frankly were unanswered about the exact form factor on chain.

And as a result of that, how you think about some of your obligations within the 40 Act and within the Bank Secrecy Act. So the market didn't like this. BTC declined slightly. Onda was down 6%. But I want to quote Commissioner Pierce here saying, I appreciate the interest in, but not the hyperbole about. the contemplated innovation exemption. It would be limited in its scope and would facilitate trading only of digital

representations of the same underlying equity security that an investor could purchase in secondary markets today, not synthetics. And she said the January statement distinguishes tokenized versions of issuer-sponsored stocks from synthetic instruments that provide exposure to stock. Now, people have come down bulk lays on this, right? There are some from Citadel. There are some from SIF claiming this will fragment markets that defy is an exchange, et cetera, et cetera.

There are also those who are call it more bullish on this. What I want to do is that, and actually, Chris, I would like to start with you, given your markets background on this one. What do you make of what the SEC is saying here? And why is this so hard for them? Like, why are they grinding on it to get it right? It's tricky. You know, what DeFi does is it really.

questions the entirety of market structure in the United States, which is predicated on things like reg NMS and the NBBO, which is the national best bid and offer, national market standards. So essentially, when you execute an equity, it gets routed to the best price. And then there's usually something called PFA, all these acronyms, I apologize, payment for order flow, where someone intersects it on its way to get the best price. And that's how the markets work. And the fact is, is that some of these companies have spent hundreds of millions, billions of dollars to really own that market structure.

And so when you're an incumbent and rules come around that can disrupt you, you probably don't like it. You know, I grew up with a lot of these guys. And I remember sitting down with one of them at lunch. And I'm like, dude, like, why are you so against, you know, Clarity Act, blah, whatever? And his response was, bro, do whatever you want with your silly little token. but don't mess with my equities or we're going to have a problem. But yeah, this is completely underwriting. And so if you're the SEC, look, Chairman Atkins has made it very clear.

I mean, he, from a philosophical perspective, he gets it. He sees the gaps in market structure. He wants to make IPOs great again. He talks about that constantly. The truth is, is that our public markets are broken. And when 80% of companies over $100 million, in the United States are private, probably something going wrong when your IPO becomes exit liquidity rather than real capital formation.

And so anyway, I think he's very focused on fixing this market structure. We also have a ton of politics going on right now around clarity. There's a ton of horse trading. And I just think it's going to be, you know, things get weird towards the end. You just can't wake up and change. a market structure that's kind of working. You know, we do have the best capital markets in the world and introduce any kind of like systemic risk.

You know, that's always the concern. And then look, our, our DFI markets, are they ready? You know, we continue to have some challenges in D5. If you look at DFI stats right now, Frank Chaparro just tweeted out how DFI TVL is down 50% since October. And so, you know, those are some things that I'm thinking about. Is it ready from a risk perspective? David, I think those are some of the things that the SEC is thinking about.

I think all the problems that we've seen in defy are solvable. Security is one thing. We've got great AI tools coming online. And then there's other risk management issues that need to get sorted as well. But it's not something, it's complex. I think it gets done. Usually regulators dip their toe in the pool first. But we'll see what happens.

What do you guys think? Yeah, you know, I don't think the pause as a tokenization. defeat. I think of it as a like a corporate plumbing problem. That's probably like my perspective. And so I think what you've seen is that the proposal has been getting hung up on like specific provisions, right, which is what would have a permitted third party synthetic token wrappers issued without any underlying company's consent? What does that look like? What happens with dividends, voting, beneficial ownership, transfers, et cetera. Those are all kind of unresolved. And I think if you if you look at like Hester Pierce's, like she basically

is drawn the line at issuer led and issuer consent tokens, which I think actually is the right line. If I look at it just from like a, you know, pure first principles perspective. And so then, you know, when you think of okay, well, what is the SEC's job? It is investor protection. And that protection does require some of the economic rights. And I think we all kind of forget about those pieces as like a starting point. So to Chris's point around dipping their toes, which is, okay, great, well, what is the first step? And I think maybe the catalyst we should be watching isn't like a new SEC rule. It might be what's the first major American company that decides to issue natively on chain. And I'm not saying that's the right or wrong approach, which is like,

who might do that? It may not happen, right? Because we have an approach with X stocks as well. that's different. And so the, and then, you know, and as we know, DTCC, like they, they have a pilot for whatever. I forgot what it was. I think the Russell 1,000 equities. I think there's some doing some stuff with treasuries, black rock Goldman, JPMorgan, Circle, Ando, ripple, blah, blah, blah. But I think there's, there's a much bigger structural fact than that headline delay,

which is that the rails are already being laid, right, on both sides, regardless. And I don't think that door closes again. I think it just continues to augment. Yeah. The other aspect that I think is really important is that if you just look at the meeting logs, like Citadel, SIFMA, JPMorgan, they're the ones that have really pushed back the hardest in like January meetings with the SEC's Crypto Task Force. I think that's a toll. Citadel obviously runs the biggest off exchange market maker book on Wall Street.

We know this. And then tokenized equities trading 24-7 on permissionless rails, we know, directly threatens the payment for order flow to PFO. economics. So part of what's getting framed here is what I would recognize as regulatory caution is actually also to say, hey, well, this is what market structure actually looks like in the United States. And the people whose toll booths get bypassed are showing up at the SEC to argue for slow rules. By the way, I don't think that's wrong because it like market structure has to evolve. It can't like be disrupted immediately. And so I don't think that's wrong in the merits. I think it's more about, hey, okay, well, what are the issues with NBBO calculation as you've mentioned

Chris, shadow shorting, et cetera. So, I mean, we could go on forever, but I think the way to think about it is the crypto native counter is that we have 24-7 markets. We already have continuous settlement. And that should be what we push for moving forward. You said something interesting that I wanted to unpack a little bit. So there's really three ways to go public in this country. One is via traditional IPO, where you work with bankers, they set the price, it's

intermediated, they give a bunch out to their best buddies. they also maybe are giving larger tranches to retail now, very well-troddened the traditional way of going public. You could technically go public via SPAC, but then there's just direct listing thing. And I've always been of the mind that in crypto, I would expect to see more direct listings and direct listings to take over,

and that's really where the market sets the price. And you can actually raise new capital now. There's been some rule changes to do so. do you share my thesis? Do you think that direct listings, and Coinbase had a famous direct listing, that crypto people, crypto companies are going to be more kin to go that route?

I don't think we've seen a lot of it yet. But do you think that that is part and parcel to this new on-chain way of going public? You know, if you, there's been this argument that you get the best price discovery with direct listings or forms of it. I'm forgetting the company that I just want,

public a couple weeks ago where they made that argument and you just saw the price pop. And so I don't I don't know if that's true, right, in terms of like the price discovery, but I think the question ends up being what does what does crypto rails, crypto exchanges, allow you to do and the direct listing, let's just say actually the direct listing's first principle. I think what you're trying to get at, I'm trying to try to mold this thing with Wall Street is that you've got like a natural fit for crypto because the conditions Wall Street built underwriting to solve, price discovery, distribution, building an investor book, etc. doesn't really exist for crypto companies or even like crypto protocols in many cases.

And so a lot of crypto companies worldwide are they build a brand with a global base. And so the posture might be that like, hey, you don't need these underwriting fees. you don't need the, you don't need the, you don't need the global perception because it's already underlying there. I think maybe the pathway to think is if you've got a 20, and I might be going on a different rabbit hole, but if you've got 24-7 trading instance settlement, no intermediary capturing the spread, what does it allow you to do to go public as any entity, including a company on these global rails in DFI or in C-Fi? And does that give you the better ability to be able to get access to capital? We've seen that with ICOs. And in some cases, you know, you've seen billions of dollars being able to get raised in, you know, seconds and minutes.

And so what happens if you've got a company in Brazil that wants to go public with, you know, 50 million revenue? Do they have a better ability to go public on our rails or defy rails versus, you know, traditional NISD or NASDAQ? And I think the future, and maybe people already know this, they don't want to say it, is the future is it makes much more sense to be able to go public. can get access to capital on 24-7 rails, which is very similar to direct listings. And what is the ecosystem that gets built on top of that in order to be able to raise that

or get price discovery and distribution of what an investor book would look like on those rails? I mean, this is almost more an argument about Sarbanes-Oxley in that sense and the incredible burdens that you face going public through like intermediated markets. Because Chris, you were saying earlier, and this is true, that the super majority of companies that about 100 million plus are still private markets right now, whereas that was very much not the case in the 90s if you look at the number of IPOs in the original tech boom. So, Arjun, if you're right that this could become a tool for those sorts of companies to go public with a more direct listing process, that would actually go a decent way towards,

let's call it democratizing what currently exists in private markets. But I want to actually pause and say, I thought you brought up something really interesting with your commentary on this being like a financial plumbing argument. So let me add a Y axis to your X axis there. I also view this to some extent as a regulatory plumbing argument, right? Because as somebody who operates globally, most jurisdictions hopefully have one, maybe at best two regulators that you've got to sort things out with. And here we have like eight. And one of the things that I've noticed has been very difficult as the SEC has started chewing on these issues is some of the commentary coming in less from the broker-dealer community and more from like the banking community and the

BSA side because I know one of the objections that was raised about the innovation exemption was, hold on, if there's people on chain, I don't know who they are and I've got to pay a dividend. I literally can't do that. Right. Like I'm prohibited from doing so because I have sanctions problems there. So is some of this also being creative just to be honest from the fragmentation of U.S. regulators and them not being able to like sail their ships together is something I'm worried about. Maybe that's where clarity would be helpful. Curious what you guys think. I don't know if Chris, you want to take that first.

I've got a lot of thoughts on that one. No, you go, man. I was just looking up some stats that I used to have that I want to share after you go. Look, I think sometimes the simplest answer is the true answer is they just don't know. Right. Like most, most companies don't know how to operate outside the United States. So if you're a bank in the United States, you're going to say something about K. YC, AML, you're going to be like, I don't know who the customer is. How do I do this distribution? It's because they don't know. And they don't know how to build those products.

They don't know how to siphant. They don't know how to work with, let's call it, you know, chain analysis and the other vendors that are out there. And so crypto and global, you know, fintech companies have been figuring this out for a while. Like, we're not the only ones, right? Revolution's been doing this in Europe for while and they've been adding more and more products. I actually think that just really comes down to do you know how to operate a company across multiple licensing structure, multiple liquidity structures, and multiple regulators, right? We deal with regulators on a state-by-state basis in the United States. Then we've got SECTC. Now we've got OCC. I'm sure Department of Banking, Fed, etc. The list goes on. Then you've got the equivalent of that in Canada, in Australia, in Ireland,

and in UK, in the member states, in all of Europe, then you have the same thing in UAE, the same thing in India. And so the list goes on, right? And I'm naming some of the recency bias, obviously, from my side, because that's what I've got to deal with for the last two weeks, not in a negative way, in a positive way, right? Because you're also educating. And then you've got crypto, then you've got AI, and then AI,

and then you've got non-custodial, custodial wallets, etc. All of these things, if you're a, if you're a bank who has not had to do this for a long time, I would say it's actually very akin to, you know, when the rates went up a few years ago, you didn't know how to do risk management and when the rates go up and you had these, you know, long, long dated assets. And then you had assets and liabilities mismatch. Like all of these things, I think it really just comes down to they're scared of how to think about risk management for their own company and how to innovate on top of that. Yeah, they're definitely not ready for 24-7.

That's very, very scary. And that's something that we in the native world live every single day. day. To me, as we're seeing this institutional era, that's the one thing that they're scared about. I mean, I'll give you two examples. Obviously, hyperliquid is sending shockwaves throughout TradFi. I mean, everyone's looking at it right now for price discovery. And then I'll even go back to what really shocked them. And I talked to a couple of major institutions recently. And people don't understand this. But what really scared them more than anything was actually the Trump token launch. not because they thought it was

you know whatever ethical whatever is because like oh my god this dude just raised $15 billion market cap on a Saturday night while everyone was at a ball in 25 and that was like

it started at 2 a.m. Right right and like all these institutions are like we've lost and it had nothing to forget Trump forget everyone you say Trump they get all angry whatever that was an incredible incredible historical moment for capital formation.

I'll challenge a shock. A lot of that was non-U.S. money also. Yeah, yeah, that's fine, Rahm. It's still, my point is this is a global capital formation moment. All right, but let's continue. So how do you view the old garb Wall Street firms reacting to this? I think the view here is, hey, crypto is ahead of the curve, instant settlement, global, permissionless.

And look, I stand for a lot of that too. I think you've got to challenge the status quo. Yeah. But the Wall Street also has an inside link here. They've got distribution. They know what they're doing. Blockrocks all over tokenization. So is the DTCC.

So is JP Morning. So is Citadel. What are the odds that they just take the ball and run with it, now that you have more regulatory clarity? I believe the crypto is underestimating that possibility. I don't disagree with that. They bring a level sophistication that crypto natives just don't get. But I think they think it's a material opportunity, but it's also a humongous threat.

And I'll give you an example. I may have talked about this previously. You guys know the history of the Bund Future. So the Bund Future used to be traded on the Life Exchange, a bunch of big sweaty guys in the pits, fighting for a bid an offer. And behind the scenes, your ex built electronification. And like the thing about liquidity,

I know you guys been around for a while. Nobody knows how forms. It just happens. Like if we had a magic formula for liquidity, like none of us would be here because it's magic, right? But overnight, that electrification happened. And liquidity moved into the bun future right into your ex

and it stayed there to this day. And you've seen multiple, you know, examples of people trying to like lower prices, whatever. So to me, this is a bund future moment where people are like, oh, my God, if I, I don't want to be life in this case. I need to be your ex. And I'm very, very concerned because this is incredibly disruptive technology. All right.

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All right, everybody, welcome back. And the Pope recently had some things to say that we want to get to release the first encyclical of the magnificent Humanitist titled On Safeguarding the Human Person and the Time of AI. This was presented along with one of the Anthropic co-founders, Chris Ola. And Leo had a lot of things to say here, not just about AI. We'll get to something else he said as well. But he said, artificial intelligence needs to be disarmed, deliberately chosen, because this moment needs words capable of attracting attention. He said AI is an instrument of domination.

exclusion and death if unrestrained, and that the pursuit of greater profits cannot justify choices that systematically sacrifice jobs because the human person is an end, not a means. There were a couple of other things in here, but I also want to get to some of his greater comments on the financial ecosystem writ large as it impacts this debate, which was, in recent years, finance has increased in importance and has undergone significant innovation driven partly by the introduction of cryptocurrencies. That's right, the Pope is talking about crypto. The reflections and observations contained in the teaching of my predecessors, particularly in their encyclicals, have highlighted how the financial intermediation sector, when operating without the necessary

anthropological and moral foundations, has not only produced manifest abuses and injustice, but also demonstrated a capacity to create systemic and worldwide economic risks. On the other hand, the Pope also said, savings transformed into credit for the real economy, thereby creating both jobs and self-employed work, remains central for the development and the investments that must accompany ongoing transactions. The social function of credit remains irreplaceable. So there's a lot to unpack, and I put those side by side, because the Pope seems to be saying, I'm not for or against either of these tools. It's a matter of how you use them.

But Chris, I want to start with you. I know you had some views here. What did you name Pope Leo's comments? Well, when the big man talks, and I'll say that Villanova is having a moment right now between the Pope and the Knicks. But I think it's absolutely fascinating that the Pope is talking about these technologies and even crypto. And the church has had a long storied relationship with technology. going back to the Gutenberg Press. In the beginning, they thought it was awesome because all of the, it gave them the ability

to spread their teachings. But then, you know, the Protestants got a hold of it. And they were like, wait a second, we need to control this stuff. And so it's just so fascinating to me that this is another iteration of the Catholic Church, you know, having a relationship with technology. And by the way, I don't know if you guys have seen the stats. The Catholic Church is doing very, very well amongst young people. I was down at Georgetown recently, and I don't think it's an anomaly.

I talked to the kids there, and they're like, oh, yeah, the church gives me meaning I lost it in social media. Now I'm finding it again, which is just fascinating. So these are part of big macro trends that are happening. I think at a very basic level, the fact that the Pope is mentioning crypto is a net very much positive for the space. Because talk about distribution. The Pope has massive distribution, particularly. from a mind share perspective and a mainstreaming perspective. If this was fringe technology, I don't think the Pope would be talking about it. That goes for AI too. He's talking about AI and

crypto together. How many times have we talked on this show? These are technologies that you cannot separate. They go hand in hand. Excellent. I thought it was fascinating that he was critical of intermediaries. And my open question is maybe the guy likes Defi. Maybe Villanova's finest likes defy and i think there's there's a reason for uh people for the pope to like defy frankly because it does democratize access to financial services and credit um things that he thinks i think done right are are thoughtful but i mean in my mind this is absolutely fascinating yeah right the pope's comments i thought they were very thoughtful you know he was invoking a manual comp when he said focus on people as ends not as means he identified ai as a

technology of tremendous genius. He said it's a powerful tool. But what he also said is he doesn't want to diminish, he doesn't want to diminish the role in of human dignity. So he started thinking about things like automated lethality and the rise of drones. You have decision making that's done by an AI. There's a risk of dehumanization, creating a distance between one human being and another.

I think that may be when he's addressing. I thought all those comments made a lot of sense. He also highlighted another. earlier speech a few months ago around the risks of creating concentrated wealth in and power in the hands of few people through AI, which is a legitimate risk. If you control AGII, you can spin up businesses, divisions on the fly, you can marshal execute resources, Citadel's well positioned to benefit from AI. If tokens become money and tokens are claims on productive assets and they're going to trade,

which they will in the future, you know, there are legitimate. concerns around that. So I think he identified the right issues. So that there was a, you know, that there's a very well-written speech. You know, there's a, I think the crypto philosophical lineage, I think, is kind of important to think about. You know, there's a, and I spend, I don't know why I do this, but I've been spent, spent a lot of time thinking about this, you know, like Judeo-Christian philosophies. I think there's a general thread connecting what the Pope said and to the entire crypto philosophical project, right, all the way, all the way back to the Bitcoin white paper. And I don't think it's a stretch actually. So if you look at like

traditional Catholic social teachings, it has a, it has a principle called like subsidiary. I'm sorry, subsidiary rarity. And that idea is that the decision should be made at like the lowest competent level and it's not centralized upward. And so that principle tracks back to like Augustine's of God, where the worldly power is always presumed to be corruptible, which is what we're talking about right now. And the only stable institutional design is one that resists concentration. So when he's speaking about concentration, this is the same thing. If you read the Bitcoin white paper, is that the lens that Satoshi is essentially arguing for is monetary subsidiary. Sorry, I always mess that up. And so it pushes decisions down to the protocol layer rather than

upward to a central authority. And this is what we always talk about. What is the point of why we started this in the first place? Why are we excited to get up? And so I think when the Pope is framing things in terms of AI, I think it's the same terms, which is how do you resist concentration? How do you protect in this specific case, human agency, regardless if you think it's right or wrong? And so he's kind of drawing on an intellectual tradition that I think is also a crypto philosophical and what is it in Harris. So I'm not, you know, I wouldn't say it's like a metaphor or anything, but it is the same philosophical comment expressed in different vocabulary.

And we're all thinking about the same thing. So the political implication, I think, is that a decentralized infrastructure argument now has more of a moral and theological backing for, I don't know, the billion and a half people that like follow Catholic teachings or the global institution, which should show up in EU regulatory debates. should show up here in the United States. It should show up in the Global South policy, et cetera, et cetera. And hopefully at the next round of how people think about AI and finance legislation,

or in some cases, non-legislation, we just continue the path. And so my hope is that at least his essay or his post or his speeches gives like a real shift in that type of political coalition and thinking. And I think maybe the markets may not price that today, even if that is the direction that we go down. I think there are some... Austin, sorry, Austin, you have to quote Aquinas now. We got an August. That was thoughtful answer, man.

I am. And I'm going to go a different direction here. I'm actually going to like pull on another philosophical thread, which I found it interesting to read this with Leo being the first American pope because part of the exact same framing that he's putting there also shows up in some of the political theory around the founding of the American system writ large, right? is this idea that concentrated power is inevitably corrupting in whatever form it is given, and that one of the ways to fight that is, of course, decentralizing it. I will remind everybody the first American government actually had to be redone because it was too decentralized

to function with the articles of Confederation. But two, if you read the Federalist paper, it's, or papers, excuse me, it's the idea of having all of the different nodes fighting against each other and working at cross purposes. Because if we believe, even inevitable corruption among these things and that they're fallible sort of creations of man. You pit the states against the federal government. You pit the federal government against itself with the executive and the legislative and the judicial separation. It's fascinating to me to see related principles expressed in theological terms because I'm wondering if what we're moving towards here, especially in the world of AI and like fears about AGI and jobs, is a greater

appreciation of not what I will call anonymous decentralization, but call it non-anonymous decentralization, right? Like actually allowing individual people to get their hands on the decision-making apparatus and be respected in that framework. So I'm wondering if the Pope is perhaps going to create an alliance of strange bad, like bedfellows here is we start seeing these disparate forms of philosophical thought run together because a lot of what I just said market economists would be all over as well from a competition perspective. Yeah, you know, I think the, forgetting the actual quote,

but like there was a quote around the separation of power, federalism, bill of rights, etc. You can make the argument that it's the same structural separation argument applied to like political power. And it traces back again, I mean, this is, you know, Catholic, natural law philosophy. And so, you know, when you think about all the folks that wrote this and then and then eventually you had the American founders. Sure. I mean, you can say,

you might have this perspective that the American Pope is referring back to this. I think it's more important, which is what's the forward implications of when people speak about this and does anything happen? I don't know if anything will happen. But when I think about what we're doing in crypto and then, you know, it's where we think about antitrust. We think about mandated interoperability. We think about neutral utility regulation. We think about ring fencing. And so my perspective, and I think actually Trump started this in the United States, so credit should be given to who started it, you know, after the Biden era, is just to get the moral cover from more globally acceptable and credible voices on ethics and decentralization.

And in the moment what we think about American antitrust, I think is a, maybe there's like a political system that's being rebuilt around that and then AI being the second pace of that. And so then we think, and we can use the same logic around financial infrastructure, payments, network exchanges, table coin issuers, custody, et cetera, et cetera. And they all run on a winner take all dynamics in the past. Question ends up being, what does it look like in the future that's open and neutral. So you guys, are you saying that the Pope is into crops? I hope so.

I hope so. Sorry. I don't help it, Austin. I'll call on another. Let me explain crops is like, that's the Ethereum foundations doubling down in its philosophy and censorship resistance. in open source and privacy. So I don't know.

It just sounded like a crop thing. You should just say CROPS. Well, I'll throw another biblical metaphor. There's this comment Sam Alman made referring to AOL as magic intelligence in the sky. When I first heard that, I said, gee, this sounds an awful lot like the Tower of Babel. The Tower of course was the first human centralized platform.

It literally was about translation, which is the core use case of AI. is built towards the heavens and it was about ego over humility. And so I think there's a good message for the Pope. It's like, hey, you know, there's is not a substitute to reify synthetic intelligence above human judgment and intuition. Did you just make an argument for building a single giant AI data center into the sky? Basically, the color bubble is like a stack of GPU chips in this metaphor.

If we're in a lot of a second. Hold on a second. For those like checking the prediction markets. Infinite band is, you know, the connectivity. Rob, Rob did his, you know,

every show bashing Sam Maltman. So he got it in, guys. Not a nothing burger. Got it in. So, all right. Let me push back slightly here and say,

I find it questionable that the Pope is arguing for complete decentralization. right given the nature and structural design of the Catholic Church, just hypothetically speaking. But I think the greater point, and this is one that actually probably hits the pivot point of the Crops argument, is how much decentralization do you need? Do you need everybody to be their own sort of source of truth or decentralized version, aka the Quakers? Or do you need a system if we're going to go in the other direction where it's okay for there to be some top-down direction so long as it is

not absolute in a sense that denies human dignity, which is something that looks more like, call it, I don't know, a semi-permission chain. That I think is an open question. But the interesting thing about the comments to me is less about what specifically is it defining. I think it's very clear from Pope Leo's comments that he's not okay with a system where it's just one or two large companies telling everybody how to think, aka Pope Leo is not a fan of Fed now. But he's a fan of Canton, it sounds like you're saying. You can't down guy.

Anton's not a blockchain. It doesn't belong in the progression. We'll just throw a stone there. No, but like all facetiousness aside, where I think if his comments are received, and Arjun, you made a good point about what is like the butterfly effect when somebody speaks like this. And I think that was very insightful.

is if there's a downstream argument here that moves towards an acceptance of the value of decentralizing decision-making power and more traditional tech and finance, that's probably a net positive for people in the world over time, given, you know, some of the abuses we've seen in the centralized system. So I hope that's the outcome. And for the record, I have absolutely no dog in the fight for the Knicks thing. I'm a longtime Spurs fan. So we'll wait to see who's a thing.

the finals there, Chris. We'll see you there. All right. So we're up against 530. Arjun, I want to specifically say to you, thank you for joining us today. This has been really, really insightful and very interesting. So really appreciate you taking the time. For everybody else, as always, thanks for joining us on bits and bips.

And we'll see you again in a week to unpack the intersection of crypto, tradfai, and macro. Thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice, and please check UnchainedCrypto.com slash bits and bips for more disclosures.