# The regulatory landscape for crypto post-FTX, with Rebecca Rettig and Peter Van Valkenburgh

## Метаданные

- **Канал:** UpOnly
- **YouTube:** https://www.youtube.com/watch?v=5UFJrU4WDIM
- **Дата:** 01.12.2022
- **Длительность:** 1:56:00
- **Просмотры:** 25,008
- **Источник:** https://ekstraktznaniy.ru/video/53147

## Описание

Cobie & Ledger are joined by Rebecca (Chief Legal and Policy Officer at Aave) and Peter (Director of Research at Coin Center) discuss the regulatory landscape in the wake of the FTX failure.

00:00 - Intro
02:00 - SBF and FTX
05:25 - Regulatory Sentiment / Reputational Fallout in DC
17:25 - Tornado Cash / Experience working in the industry 
25:30 - SBF and Congress / DeFi
40:50 - Was SBF trying to kill DeFi? / Bills and Legislation 
57:30 - OFAC / Sanctioned Wallets / Financial Privacy 
1:13:40 - Should technology have an entirely new regulatory framework? 
1:20:45 - Financial Surveillance / More on DeFi 
1:32:10 - What does the future hold?
1:39:45 - Questions from the chat / Regulatory Uncertainty

## Транскрипт

### Intro []

Up only 10 9 ignition sequence start 6 5 4 3 2 1 0 Hello and welcome to Up Only TV. I'm Ledger. Cobie's on the line and we have really smart people with us today. We are thankful for them joining us. It's Peter Van Valkenburgh from Coin Center and Rebecca Rette from Ave. Let's just get straight to the show. Oh, Cobie. What did I do? There we go. Oh god. It wouldn't be Up Only if I didn't do that. And I've got you muted. There you go. Hey, how's it going? Well done, mate. You're getting there. It's only been 2 years. You know, whatever. We made it. All right. The most important question, Peter, do you own a Pudgy Penguin? No, but Naraj has one. He's even got the rod. Yeah, you got to have a rod. Come on, man. Rod, I'm sorry. I don't know the memes. You should have had him on. Do you prefer Pudgy Penguins or Sappy Seals, Rebecca? Uh the Pudgies. Yeah. All right. Cool. Um glad we got that out of the way. Um So, yeah, I guess like uh we organized this about a week ago, maybe 2 weeks ago, I don't remember, when stuff was blowing up and I was like, can we just chat about what are the implications of the FTX um saga um on the crypto industry, I guess, was the big question that we'll kind of focus um our energy on for the next however long. Um but then a bunch of stuff happened since, so like Sam's now on a PR tour, it seems, like a like some kind of

### SBF and FTX [2:00]

I don't know I don't really know. Rebecca, what do you think he's doing? Um Thankfully, I can't really see too deeply into his mind. Uh but I do think it's that bit of a redemption tour um and trying to create a narrative that's different than what the facts appear to be as we've seen them unravel publicly to date. Yeah. I um I spoke to uh a family member that like follows crypto but doesn't have any money in crypto. And I asked them what they knew of the FTX situation. He was like, "Oh, is that where the bank run happened? " And I was like, okay, normal people who just read the news think a bank run happened. I was like, "Yes, that's where the Yeah, that's where the bank run happened, yeah. " Um given that it seems like so far he's been relatively successful in this like this shift of the narrative, right? Like because I've also had that same outcome where I talked to normal have you gotten caught up in this drama of bank run or collapse? Like the word fraud is not coming out very frequently. Um so is he does is he successful so far? I think he's the media's helping a little bit. Yeah. Yeah, I mean, ultimately though, the question is like will that matter in the long run, right? We've heard or know that there are investigations going on around the world and um we know that, you know, they filed for bankruptcy, so public perception is one thing, but ultimately what happens may be very different than how that's going down. I don't know. I mean, the only thing I would say is just cuz I happened to see that Matt Levine's latest column came out on Bloomberg like about an hour ago and I read it. His take is good. His take is like, here's my summary of what SBF is saying. And it's a lot of things like, "Oh, well, there's just margin. There's just leverage and then there was a run on the bank. " And Matt Levine puts it in quotes. And then Matt says, "Well, what we really I mean, what do we care actually what SBF says at this point? What we should care about is what the current CEO, former Enron guy clean cleaning up after Enron is finding when he digs through the books. And yeah, I mean I don't know any inside information that's not published in the press, but it sure looks like fraud to me. And that's all going to come out. I mean, it doesn't matter how good your crisis PR communications team is. This is going to come out, right? Yeah. It seems like it's good like fun voyeurism to watch like he tweeted what happened over the course of 3 days letter by letter. Um so there's like this sort of like car crash type entertainment, you know, when you can't look away from it type thing happening. I think the only people that really need to care about what he says in these interviews is like the other Sam and Caroline cuz he's like sort of like subtly throwing them under the bus or not so subtly in all these interviews, I think. Um but yeah, um what a a strange follow-up to a horrible situation. Truly. Yeah. So, what are we going to talk about today, Cobie? Yeah, so we

### Regulatory Sentiment / Reputational Fallout in DC [5:25]

arranged this cuz I wanted to I messaged Rebecca and I was like like, "What does this mean for the industry? Do you want to come talk about it on Up Only? " Um and like do the people in power in like various countries, do they understand what happened? Do they understand that this is like you know, effectively a uh fraud happening at a like crypto bank rather than like a Bitcoin or Ethereum problem, like, you know, is that clear to these people? Um and will that even matter? So, I I'd love to chat about that stuff. I think it's quite a big uh question to begin with, so maybe we can just go like for you guys are both like on the ground a little bit more um than we are cuz we just sit in our rooms and do a silly podcast. Um Uh so like what is the sentiment um you know with people on the ground in DC or wherever else? Well, I'll take outside the US first cuz I um have a lot of exposure to policy makers and regulators outside the US including very recently. And I will say, you know, contrary to what we were just talking about with respect to the press, they all see this uh for the most part as a fraud. Um and have publicly sort of come out just in uh the EU held a big sort of public hearing um earlier this week and um John Cunliffe from the BOE gave a speech uh maybe 10 days ago and sort of noted that it was a fraud and I think it's very clear in other even Asian jurisdictions which have had pretty strict crypto regulation on centralized exchanges and centralized actors, they understand it's a fraud. So, certainly outside the United States, I think people understand at least what as Peter said is perceived to be the case. Um again, no inside information on my end and obviously only speaking for myself and nobody else. Um So, I think that's going on there and people are um at least proceeding um sort of regular course of business. Regulating centralized exchanges in the UK, they're actually starting a sandbox including for things like DeFi. Um you know, there's a plan on what to do with DeFi under MiCA which is a markets and crypto asset regulation that's in the EU. Um so, everyone's sort of proceeding a pace outside the US and I'll turn it over to Peter to speak a little bit more deeply on what's going on the ground in DC. I mean, the reputational fallout in DC is going to be very real no matter what because it's always a struggle to get folks who are very busy and have real policy agendas in other areas to look into crypto and not just immediately jump to what is often the first perception that these things are just for criminals and for scammers, right? And we've done Well, this is Coin Center's objective since 2014 is to tell a balanced story. You know, we don't sweep the fraud under the rug. In fact, we quite often We have a backgrounder that we published back then on why are there so many scams in crypto? Um but, you know, policy makers need to know the other side of the story that there is real technological innovation. There's something fundamentally new here where you can have certain trusted interactions with other people online without having an intermediary. And yes, the use cases for that, the real use cases, are still fairly small and niche. You know, like if you want to make a donation to support the war effort in Ukraine defense against Russia's invasion it's actually one of the better tools than anything else out there, especially when the government of Ukraine posted an address where you could send support. For other things though, for like a guy just at a convenience store who wants to buy a cup of coffee, crypto's terrible. And even for some of the, you know, much vaunted Web3 use cases like we're going to rebuild social networks or, you know, massive platforms like Google Search or Amazon Web Services on top of blockchains that sounds good. I believe that this is a good technology to build those things, but we've yet to see them be built in a way that are user-friendly enough and scalable enough to actually support those kinds of new systems in a large way that would meaningfully change the underpinnings of the web and make them more neutral, decentralized, censorship resistant. But the technology's on the right track and I don't ever mean to pooh-pooh it too much. So, my point is when you go into a congressional office and you say um yes, you've seen ransomware attacks cuz maybe you had a person in your district who couldn't buy gas when the Colonial Pipeline hack happened. Yes, you've seen scams um and it used to be we still talked about Mount Go- Mount Gox not too long ago. And now they're going to say and there's this massive $8 billion potentially theft or fraud. It's harder to switch the conversation to but there is a core to this technology, not necessarily the businesses built on this technology, some of which are not well run, but there's a core to this technology that's going to improve people's lives um on balance and significantly. And that requires a an element of faith in technological innovation. So it requires being able to persuasively tell a story and when on the other side is someone saying uh there was already not too many legitimate use cases for crypto and it seems mostly like a big casino run by some kingpin who's now hiding in the Bahamas. It's not it doesn't make our job easier. I don't mean to be doom and gloom. We're not going away. Coin Center's going to keep doing our work and we have some inspiring stories to tell like the ability to donate to support the war in Ukraine and we'll keep telling stories like that. But the fallout is going to be real in that sense. Now to more directly answer the question that you asked in the way Rebecca asked it, do policy makers know the difference? The ones that matter in DC still do. Our greatest champions on the hill whether it's Representative Tom Emmer or Mike Henry or uh Senator Stabenow or you know the people who are working on these issues, they do know the difference. And several of them are actually working on legislation that would fill a gap in the US that's been very real where we for some very odd path dependent reasons regulate custodial intermediaries as money transmitters in the state in each state where they have customers. This is how for example Coinbase is regulated. They have to go get licensed in all the states. I don't actually don't know maybe Re- Rebecca, you know whether FTX had licenses? I I haven't checked. Mhm. Yeah. Did they have licenses in every state? Uh you know and maybe that's I it's a it's not an easy system to comply with and it's no excuse then for non-compliance, but it's just an irrational system. There should be a single federal regulator which is sort of similar to what's going on in Europe with MiCA and other things. And one of the pieces of legislation that was actually moving in Congress and might still be moving was the D-CCPA, the Digital Commodities uh Consumer Protection Act which would have created a registration entity run by the CFTC for centralized exchanges that would require things like um segregation of customer funds into qualified custodial entities um and sort of a division between exchanges and broker dealer type activities that's supposed to be safeguards in place for the very um malfeasance that appears to have happened in the FTX situation. And I don't know now if that piece of legislation which was still just in the drafting phase um is more likely to move forward or less likely. It's sort of still there's still chaos on the ground given in the wake of FTX. And I also don't know whether it changes and the only direction I think it changes is to become a bit more hard on this stuff because that's the only way you're going to be able to sell it to other folks in Congress is in the wake of a crisis. We've got to be really. So it may not change, may stay the same, it may become somewhat more punitive or more onerous from a compliance standpoint, but so realistically that's probably the biggest change. It also may not pass. Uh legislation's very difficult to get through Congress. Yeah and just to pick up on a few things that Peter said, right? We're hearing um there's who were either uh anti-regulation or regulation in a different way now stepping in to talk about regulation. Um we've seen yesterday um Senator Brown called upon the Treasury Department and Secretary Yellen to uh think about comprehensive crypto regulation through the Treasury Department. So sort of saying let's not worry about that SEC and the CFTC like come let's come up with something that makes a lot of sense. And one of the things I'll say that I've been thinking a lot about in the wake of FTX is like in the US we've gotten so caught up with the are the tokens these securities or commodities that we sort of have left as Peter said the regulation of US exchanges to the state level on a state by state basis with money transmission licenses and the BitLicense in New York and things like that. And so given the sort of public struggle that I think some of the what I'll call regulated exchanges in the US have had like Coinbase, Gemini and others it I don't know if it distinguish them so much from a Bahamanian regulated exchange like FTX. And so people may not have been distinguishing enough and when we talk about a place like Japan that has very significant regulation for centralized crypto exchange, I don't know if they're caught up in the what are these tokens, we're just caught up in like what's the best way for an exchange of any sort that take customer assets to be run and I think and hope that that's sort of the first question that we're asking ourselves on a regulatory level is you know less about what are these tokens and more about what is best for consumers. I'll say the other thing just Kobe cuz it's sort of how we started this discussion when we were messaging is like it was an existential moment at least for me and I don't know about for Peter um just having been in this space for so long and really trying to see it move forward in a mature way that makes a lot of sense and being so involved with software developers even when I was outside counsel and now here um at Ave um I really had to take a step back and say like what am I here for? And I actually read Peter will like this. I read the Bitcoin white paper about a week after the collapse of FTX and I said like this is what we're here for. We're here for this paradigm changing kind of um technology and yes it hasn't gotten as far as I think we've all wanted it to because there's been a lot of focus on number go up and sort of centralized exchanges and centralized actors in the space, but what I can say and this goes to something Peter talked about, you know, decentralized social media not to shill anything, but we did build a decentralized social media protocol. Um it is in beta, but it's been out for I don't know seven or eight months and it has well over 100,000 um uh profiles that have been minted there and the biggest difference is that you never give over your data to any centralized party ever. Um and when you talk about that with policy makers and regulators, that really perks them up a lot. Um more so than DeFi or anything else. They're like oh that is the thing we care about a lot that you never have to give over your data. Especially now that everyone wants to everyone who's not talking about SBF is talking about Elon buying forced to buy Twitter which is an amazing turn of events. I think I you know Rebecca, we should send you um we have a free gift for some of our donors. You can choose it's the Satoshi white paper as a little like pocket constitution. Yes, I think I have that from Coin Center dinner last year. I hope that's the one you read cuz I agree. to Coin Center and I never got one of them. Yeah, you didn't dock your address. Kobe. That's yeah, that would have been the right way to donate. off this certain reason. I got to I mean climb around see if I can find mine. It's cliche and it almost makes us sound kind of like a cult. #notacult, but there you know there is a there is need to go back and find sort of ground truth in this environment. One thing that was disheartening to me

### Tornado Cash / Experience working in the industry [17:25]

um cuz I actually I don't enjoy the circus. I don't know if anybody enjoys the circus. Seems like some people enjoy the circus a little bit, but at Coin Center I'm the least likely to enjoy the circus. Naraj kind of seems to surf the wave on like all of crypto Twitter and he always looks beleaguered, but I think he actually gets a lot of energy from it. But personally like I I'm struggling in my job because we're fighting this fight with respect to the Tornado Cash um OFAC sanctions designation and they undesignated and redesignated Tornado Cash. I think it was like four days after the one of the big SBF bombshells dropped and it was just another thing that happened that week and that that made me a little sad cuz I was like this is what's actually really important. This is fundamentally different in that you've got government coming after a protocol and actually saying every US person is no longer allowed to use the software as it exists in these Ethereum addresses. So you've got a very real threat and a genuine one like they have their reasons and they're quasi legitimate reasons. I think they're mistaken in the way they're enforcing sanctions law, but I would never deny that sanctions aren't important and that the stuff on the line here is really significant when it comes to say funding of North Korean weapons programs and things like that. So we're mounting up for like a really serious fight um to try and preserve Americans' ability to use smart contracts that are immutable and that no one controls under conditions where no one even benefits as far as the sanctioned entity and yet that's sort of like a an afterthought in the news cycle because the SBF stuff is just so people's just eyes are glued to every lurid detail. Like I want to know more about what's going on in this apartment in the Bahamas. It's like it's gross. Not to mention that the developer of Tornado Cash is um being contained or in jail without charges. Just Alexy has been held in a Dutch jail now for it's got to be like 115 or 20 days. I was actually really upset to learn given my last name is Van Valkenburg, so I have some cultural distant they immigrated to America in the 1600s distant cultural allegiances to the Netherlands, but I was shocked to learn that you can hold someone without charges in the Netherlands for 110 days and then he had a hearing recently, and they still haven't charged him to my knowledge. They just convinced a judge that they can hold him for even longer. Um In America, we have all kinds of issues with our criminal justice system. I'm not defending the American criminal justice system, but at the very least, you have to be charged within a very short amount of time from being apprehended. And then your lawyers can start working on a defense, you know? Well, that's the important thing. I Didn't they always talk about auctioning his stuff? Ooh, I don't know. It wouldn't surprise me. I mean, civil asset forfeiture or asset forfeiture is a big part of the criminal justice system, so I don't know that though. I do not know. Uh Mark Karpeles was on the show Tuesday, and back when Mt. Gox collapsed, he had talked about how he was never charged in Japan, but he was in he didn't call it jail, but it was like isolation in a thing that sounds a lot like jail for like 4 months in Japan. Um And so, kind of a similar situation, and then they ended up not charging him with anything. Um so we do Kobe, you're not American, but those of us who are American do have some privileges um that are to be ones I'm thankful for. And it's been disappointing to see all this going If we could back up just a tad, Peter, you're talking about being upset about your role in your job in this industry given all that's happening. Like well, I probably overstated it just then. Well, I bring it up I'm not leaving. No worry. Have you ever actually I you've testified in front of Congress before. I'm Rebecca, I can't remember if you have as well. Not yet. Waiting for the DeFi hearing. Okay. So, but like Peter, were you ever doing that with Sam? Uh Or but in general, like you're now just going up there you're like, "Yeah, if you forget all these freaking clowns over here, let me tell you about the real stuff, you know? " Like is that part of what's depressing about this? Is it makes it harder to be an adult in those conversations or like feel like Are we being taken this way? It's always been a struggle in that sense. I mean, we all realized collectively in the CoinCenter office that um we're going to have to explain all of this to our relatives on Thanksgiving. And we're like, "Ugh. " That's going to be an interesting one. Yeah. Um it's still, you know, I'm I'm whining and I shouldn't be whining cuz I have absolutely the most interesting and enjoyable job that I think any young lawyer out of law school could hope to have. And I love my team. Like we're a five-person team that's been together since 2014, and we're like a family, so yeah, I shouldn't be cavetching so much, but uh it's it's embarrassing sometimes when you know, there's these ridiculous cancerous growths on top of an otherwise very nice um interesting technology. But So, I'll say two things on that. Um I was down for hill meetings I think 10 days after uh the sort of bombshell dropped on everything with FTX, and I was so just walking in feeling so embarrassed. But on the flip side, in terms of what Peter was saying and what you were asking about, I do think people on the hill can distinguish between people who are acting like adults and do have both Look, industry interests, but also understand the law, right? Like a lot of what And I think Peter and CoinCenter does this too, but like a lot of what I work on policy-wise is like, "Let me explain the technology to you so you understand how it works, and um you know, why the regulation you may be proposing isn't going to do what you think it's going to do. " Um so, I do try to be sort of patient in explaining the technology and also bridging the gap between developers and policy makers and law makers. And I actually think um the hill meetings went much better than expected. I mean, there was a lot of I think consternation, especially that close in time uh and given how closely Sam close Sam had been and how much he'd been on the hill um and in DC generally. So, there was expected consternation, but people can distinguish, and um I think, you know, while there was some backlash in terms of like we need to regulate and fast and more stringently than we thought, um as Peter was alluding to, I do think people understand that this is a real industry. It's not going away. And so, we have to do the right thing in any number of ways, especially with respect to retail consumer protection and the like. When people say the hill, I'm always one I don't know anything about American geography. Is it actually do all the like regulated buildings just on top of the hill? Yeah, Capitol Hill. So, it's just a massive hill? No. Yeah, yeah. The hill I just remember being in like primary school, and there was a hill in the field, and everyone's like, "I'm going to play on the hill. " That's what it is for you. If it's What do you mean? In the country you're in? You're in the UK. All right. So, you're like This is St. Paul's is a beautiful cathedral, right? Yeah, yeah. Yeah, so we've got an even bigger dome cuz we're America, we got to be bigger. It's the Capitol Building. It's where the legislature sits, and it's on a nice hill. And all the house offices and Senate offices are there. Listen, it's a small hill, Kobe. Like this is not a big hill. Is this what the TV show The Hills is about? I don't think so. Uh-oh. Oh, no. Like an MTV show like 10 years ago or something? I don't know what The Hills is about, actually. This is I don't know. You've got the worst guest possible in me to describe pop culture references. Let's make the whole show about this.

### SBF and Congress / DeFi [25:30]

Ledger, you're struggling with something. What Explain your concern, Ledger. What have you done wrong? Uh well, temporarily everything froze, and then it came back, so it's fine. we're good. Um I did want to talk a little bit about what you mentioned like Sam was on the hill a lot. In DC a lot or wherever. Um and So, imagine Sam on the hill. Um He would look at you The Hills. Whatever that show was. No, Sam was not on The Hills. I mean, look, give it a few years, he might be. What was that some MTV show with like really young kids or something? I don't know. I think it was even want to think about an SBF reality show. That's just That's terrifying. I think we're going to have plenty of SBF-related uh content. Unfortunately. But he was, you know, he was um cozying up to regulators. I remember seeing photos of him and the like CFTC's team like team like, you know, together on Twitter. Um he had someone There was something about how many meetings he'd had with someone that came out recently. Um he'd donated a lot to politicians, apparently on both sides, um both Dems and Republicans. Um but publicly to Democrats and like in secret to Republicans or something. Um so, he'd done a lot of cozying up to like people in power in um America and maybe worldwide. I I don't know. I haven't um followed that if so. Um but does that make things much worse because it's makes it sort of like like there's a level of uh boldness to like go into Congress or wherever and say "The financial crisis happened cuz of these things. Uh crypto and FTX is transparent. That can never happen at FTX. " And then like 6 months later it happens at FTX, and all these people have like money donated from FTX. Is that customer deposits? And now they're their jobs are in question because they were so close to this guy who was doing fraud? Or is it just like he's a fraudster? No one could know. We move on. I mean, just in general, it's not surprising to me that somebody who's running a large and heavily used business in the crypto space to come to DC and take meetings with either potential future regulators to the extent we're talking about a new, say, CFTC-run licensing regime, or potential existing regulators to the extent that some of the things trading on these platforms may or may not be securities, and so you're going to want to at least have a conversation with um uh commissioners or the chairman at the SEC. Like that's all very normal. Um it's very normal for industries. It's less normal for the crypto industry to make substantial donations, and I think to some extent FTX's the degree of or the degree of SBF's donations was sort of a change for crypto, not for I mean, it's very normal for big business to make donations in DC. But I think at the end of the day, what you said is people recognize that a fraudster's a fraudster. As long as you weren't complicit and you didn't know or intend to further their actions, um you're not culpable. It may change the narrative in the same way that I was talking about earlier where if you were going there and saying, "Oh, look at the beautiful blockchain. You can see all the transactions on it. This is how we're going to prevent the next financial crisis. " And then your failure to keep records, which it appears there was a pretty deep failure to keep records just based on public information that's now being revealed, is going to make that claim really spurious to somebody who maybe doesn't have the ability to learn enough about the technology to know that core claim is correct when you're talking about the blockchain, but it's not correct if you're talking about some centralized business that is just helping people onboard or offboard or do margin trading on a centralized basis or something like that. So, you know, this just goes to what I was saying. I think the biggest fallout is reputational for the whole space, but it's not something that we can't recover from. And as Rebecca said, you felt energized at some level by the end of the day taking meetings. And I feel that sometimes, too, because there is a story to be told here where you know, DeFi by and large did not blow up despite several precipitous drops in the value of the relevant assets that are wrapped up in smart contracts. And most of that is due to the fact that smart contracts tend to be heavily collateralized because lending is difficult in a in an environment that is low trust by design. It's verify, not trust. And to the extent there is some amount of leverage is transparent and people can see rapidly when things start to shift. And that's not the case, quite evidently, at a centralized institution. So, you can paint a much sharper picture now, but you're going to have to make it into the office and get somebody to listen to you in an environment where the whole space has a damaged reputation. Yeah, to Stani's credit, I two years ago when we were in discussions about me coming on board in to be in-house, he was like, "Also, we have to start doing the policy work on the DeFi side of things. And that's something I want you to take on. " So, when I came on, we started interviewing lobbyists around the world and I was talking to GCs and other people at you know, DeFi software developers and I was like, "You guys need to get on this, too. " And everyone said, "Oh, I don't know if it's a priority right now. It's not where we want to put our focus. " But I will say the efforts have made I mean, have obviously been important to have taken on. Um and we have spent Originally, the plan was to do a lot of education. So, to Peter's point, we actually do a lot of demos to all sorts of different agencies, to congresspeople. Obviously, globally we do it as well. Just so people can see like what it looks like, how it works, the over-collateralization point Peter is talking about, which I would say is used as a proxy for credit worthiness. And what's actually been very interesting is for something like when we saw Celsius repaid all of its borrowed transactions to the Ave protocol before it ever, you know, went into bankruptcy or something like that. Like these types of proxies for things we see in the traditional financial world seem to work in the way people anticipated them. Now, I don't think we should all be cocky and be like, "DeFi DeFi stood up and nothing's wrong, right? " Like to the point you said, Peter, right? Use case and we have to be real about you know, hacks and scams and things like that. So, I don't think we should be too cocky. I do think we are still in an evolving environment. And I think especially, you know, Web3 social media things like that are on one side of things cuz it's slightly different and the stakes are different. But in DeFi, I think we have to be really serious about where the risks are and stuff like and along those lines and be honest about where there may be places that can be better. And I will say the most interesting thing about sort of the new evolution of DeFi protocols, whether it's a new version of an existing protocol or a totally new type of, you know, a similar type of protocol, is that the risk mitigation mechanisms are getting much more fine-tuned, right? I think a lot of the original V1, V2 of certain types of either AMMs, liquidity protocols, like Ave, Compound, things like that, were basic is not the right word, but you know, were just sort of like, "How do we fix, you know, let's say level zero and what's going on in our financial system? " But now there's fine-tuning on risk management. You can see it on V3 of Uniswap. You can actually Ave where there are like set ceilings and real-time risk parameter changes being able to be made and stuff like that. And so, I do think that's some of the most interesting things that are happening in DeFi. And so, when you have to go talk about use cases, you have to say you have to be honest like we haven't fixed it all today, but we're working towards it. And so, you don't want to do something you know, regulatory or policy perspective to shut that down in its infancy because let's say Maker is the oldest of the DeFi protocols and that's what like six, seven years old. It's not that old in the scheme of, you know, how things have worked, especially when you compare it to the traditional financial system or the legacy financial system. I actually prefer the legacy financial system as a term. But which has been around for like, you know, hundreds of years. So, I do think we have to be realistic about that as well. But on the DeFi side of things when you talk about it, you know, regulators like to say same risk, same regulation when you're talking about building out regulations. And what I do think is an important point when you're talking about DeFi protocols is different risks, same regulatory outcome, right? You can't say that oh, you can't achieve market integrity and financial stability and consumer protection and you know, combating illicit finance. Those things can all be done. They just can't be done in the exact same way that you do them in the traditional financial system, right? Putting KYC on an informational only front end, you know, does that make sense? Because KYC usually, at least in the United States, goes runs to financial institutions that are regulated mostly under the BSA and certainly under the umbrella of the Treasury Department if you're a money transmitter and or an MSB being regulated by FinCEN or otherwise being regulated as a financial institution. And you know, an information providing front end, is that really the place where we need to do KYC? And look, I think we have to be honest about some of the conversations and take the time and be really patient in explaining how the technology works cuz not all front ends are created the same. There are some that route orders and take fees and look a lot more like traditional brokers and there are some that are not. And so, you know, I think the most important thing people can be doing policy-wise right now is explaining how the tech works. Not the centralized stuff. That for me at least looks very reminiscent of the legacy financial system. And as I said earlier, I don't think it really matters that much if they're securities or commodities. It's probably a very controversial opinion, but like we can put some consumer protection stuff in place, right? I mean, that just seems reasonable for now. One of the most elegant things about Bitcoin is that adversarial market participants can all operate in a way that the system still operates. You don't have to say like please and thank you for who can participate and how. And seeing DeFi uh be able to start to evolve into some of those same principles where adversaries can operate and you're not like begging them to not do something. Like the system is just designed so that those adversaries can participate. Seems like it increases the health dramatically. I mean, we've recently seen an attack where I guess an attack where someone was trying to take advantage of Curve and Ave and the leverage systems involved and try to create a problem in that generally seem like DeFi like the Ave system, Curve systems kind of survived it and made out okay despite kind of adversarial behavior. And you want to see that kind of hardening of systems be able to continue to improve so that you're not like asking, you know, please do this the way that we hoped it would be used, you know, not just any way it can be used or abused. Yeah, I think it's the amazing thing even just thinking about that a little bit is that it also wasn't it didn't even if there was an adversarial transaction in some way, shape or form, the community and all it happened in a decentralized way, right? Like all the liquidations happened in a decentralized way. The risk parameters were changed through governments afterwards, things like that. And that is really different than what we see in the legacy financial system today. To Peter's point, is does it mean that now DeFi should be or can even be ubiquitous because it's a better system completely? No, but I do not necessarily and let's say not today. But I do think and what I find so interesting when you hear the Bank of England speak is they do say, "Well, there's something here. " The UK has been notwithstanding some of the sort of historical hostility from the Financial Conduct Authority, the regulators and policymakers in the UK definitely see at least some aspect of promise here including with things like Peter started the discussion about with transfers of money and more efficiencies in the system that may not exist in our legacy financial system. Is that cuz Rishi's got big bags? He just came on. This has been going on for at least the last two years, I'd say. Um Yeah, but he was Treasurer of he was Chancellor of the Exchequer or whatever. Yeah. So, so what's going on here is something that we've struggled with for a long time because we primarily focus on US policy. We've occasionally reached out as Coin Center and we filed comments with the FCA with the Financial Conduct Authority in the UK when they were talking about sort of a little bit of overbearing or too aggressive anti-money laundering KYC regime and identifying individual users. But the thing that's great about the UK, even though sometimes they overreach with surveillance, is you've got one regulator for the financial system. And that means you only have one person to talk to. A lot of what we end up with as far as problems here in the US, Rebecca was alluding to the securities versus commodities divide and how it really shouldn't matter too much from an investor protection standpoint, but it does and we spend a long time arguing about these things. It's because we've got too much decentralization in the way the US government regulates financial products. You've got no fewer than seven federal agencies that are all fully independent and all have their own, you know, political appointees who have to get results for their boss, the president. Huge staffs, some of which are very well informed, extremely well informed about crypto, but don't always get listened to. And then you've also got all of the states. So, every state has its own financial regulators, and some of them are very activist, like the New York Department of Financial Services with its bit license and its trust charters, and they still want to be the cop on the block for the globe because they think all finance still goes through Manhattan, and a lot of it still does. Uh and then you've got states that have taken a more apathetic approach or something don't have the fiscal resources to actually do much in the way of policing, and so people in those states, do they just get less protection? It's kind of odd. Kind of oddly and very specifically American. And the result is when you come to look at a new technology that has to fit into this already highly decentralized system is every month basically you get a new pronouncement from a regulator that crypto will be regulated in this form or that form, and they don't always work together to sort of coordinate that response. And so, that's why in a nutshell I'd say the UK has been uh for other reasons the UK is good, but at the very least they don't have the systemic problem that we have in the US where you've got simply too many people who need to be in the same room agreeing on the same things who have their own incentives. I couldn't quite tell if you were talking about our financial system or health care system there. It's probably the same problems. I'm not

### Was SBF trying to kill DeFi? / Bills and Legislation [40:50]

an expert in health care policy, but I don't I've talked to one, and I'm like, "Wow, your job's worse than mine. " That's it. Um when just before the FTX blow up happened, there was this like sort of um ongoing panic on uh Twitter that um SBF was trying to kill DeFi by like pushing some changes to some bill that is not like in final draft yet. Um that was like really bad for DeFi. And then uh he had that embarrassing podcast episode with Eric um on Bankless where he, you know, got pretty demolished, I think, at least from audience perspective. Um I don't know how people in on the hill would have uh thought watching the debate. But, does that bill still exist? Is it as bad as people were saying it was? Um like what is the general state of um the Mhm. the coming regulations for DeFi and crypto generally prior to this blow up and prior to this reputational damage. The specific bill in question here is what I mentioned earlier, the Digital Commodity Consumer Protection Act or DCCPA. Um you can add that to your list of favorite words, including the hill, Kobe. I know I want to hear you say this on like every episode from now on. Yeah, we're going to be talking about the podcast. The podcast is now called the hill. Welcome to the hill. people, and there's an old SNL thing, and now that theme song stuck in my head. Anyway, uh the DCCPA is this piece of legislation that I mentioned earlier that would create a registration requirement run by the CFTC for digital currency trading facilities or digital commodity trading facilities, um broker dealers, uh custodians, basically the custodial and centralized intermediaries in the world. And the concern over that legislation's impact on DeFi was whether the categories, like what is a digital commodity trading facility, broker or dealer, were drafted since they were broad enough that maybe they could be applied or misapplied when the regulator goes to enforce the will of Congress with the flexibility inherent in the way the words were drafted on the page, misapplied to cover something like uh a Uniswap or an Aave, some sort of dense decentralized protocol that is not at all what we consider a traditional trading facility or a traditional broker dealer. Um and what I'll say Yeah, go ahead. I I'll just I'll be quick just to round it out. Um those concerns are legitimate. In fact, like most of my job is waiting for Congress to draft laws and then becoming upset about how there's sort of too much looseness in the language, and it should be tightened up so that we don't have these unintended consequences. Um but I think the sort of this is an apocalypse for DeFi may have been somewhat overblown in the sense that we never even got bill text, and from my sense the drafting the drafters were very interested in working with anybody who was sort of credible in the community and wanted to uh suggest changes, work and work to modify the statutory language to make it tighter to avoid unintended consequences. And where we last left it, uh and this is still an active bill uh in the Senate, so this could become law still, where we last left it, there was a uh a draft that was public that had a carve out for software or for validators, for uh miners and stakers, and that was already, I think, a pretty good carve out because you wouldn't want a miner to be considered someone because they order transactions in a block or something like that, a trading facility, and have to register. That defeats the heart of the network, the censorship resistance and the base layer neutrality ideas that we fight for. And so, that was already progress in that language was there. The missing carve outs to my mind were to do, and we wrote a blog post at the time, software developers. If all you're doing is developing software, you're not doing other things, you shouldn't be treated as a trading facility. And there's a pending SEC rule making to redefine exchange in the context of securities exchange regulation that could actually embrace a software developer. So, this is a problem at both the SEC potentially and could have been in this bill. There's a leaked version of this bill whose which the authenticity of which I cannot vouch for, but it was widely discussed and leaked on Twitter that did actually include an exemption for software developers. And so, to the extent that was a bonafide uh working draft, and to the extent Yeah, he uh Gabe did leak that. Um that was encouraging as well. And then the last problem, which I would want to see it um Like Gabriel with the sword? Yeah. And the no shirt and that. No, not that Gabriel. Not that that Gabriel, no. The one who just raised $10,000 to go eat No. meals in the Bahamas. No. Not that Gabriel. No, not that guy. That guy's amazing. Yeah. That guy's a trip. Anyway, the last thing I'll say, I know this is sort of dry um policy discussion, but the last thing that's in that bill that I would want to see um adjusted before we would potentially, you know, be okay with its passage, is the dealer definition, the broker dealer definition, could potentially sweep up persons who are just buying and selling their own crypto. Uh and what we think would be a sensible way to prevent that, which is actually the way it is in existing commodities derivatives regulation, is to have a de minimis threshold so that below a certain amount you're not subject to uh registration requirement as a broker or a dealer. And it would be a very high de minimis amount. In the commodity space it's on the order of millions of dollars. Um so, we're not talking about like just $100 you're allowed to trade. You're allowed to trade a lot on your own behalf before you start rising to the level of a supervisor regulatory entity. Is it have There might be you go ahead. But, isn't there one of the risks though of like this uh bill is kind of half-assed and, you know, wrong or damaging in this way over here, and then it's like, "Okay, it's tabled. " Uh and then, you know, somebody that's like 99 years old, like Richard Shelby, puts it into tanks for Ukraine bill as like a throwaway item, and it gets passed in the 11th hour as a oh my god, now this is a disaster. That is how a lot of legislation happens, and that's how we ended up with the um 6050I reporting requirements in the infrastructure bill, which we're also suing the government over, Coin Center is, and for points of This would be kind of radical for that though because it's a whole regulatory apparatus, whereas that was simply a change to a reporting requirement. There was a talk though about a appending the DCCPA to an omni because of the timing, and pre everything with FTX, the timing was thought to be to get it all out and to get it passed before 2023, it would be attached to an omni. So, you're right. I mean, that's something that could have happened. I will say just to echo a few things that Peter's talking about. The breadth of a lot of the definitions would have captured um different parts and actors in the DeFi space, maybe intentionally unclear um, you know, if not. Uh like so, the dealer would have definitely captured LPs on Uniswap, right? Um so, if you were providing liquidity, you would likely would be um considered a dealer under the definition. Same with the definition of broker could have captured um front ends of some kind depending on what they were doing at the like. But I but the one thing I will say, and there was obviously a lot of backlash on Twitter saying, you know, we don't know what this bill says and this is unfair and things like that, but the process was very open. For people who asked to go in and be heard, and the DCCPA at the time was co-sponsored by Senators Stabenow and Senator Boozman. They talked about it today at the hearing a little bit. Their staff would talk to I don't mean like anyone off the street, but they would talk to anyone who was in the industry, um and they really, I will say, were very open to understanding, and I can't speak to the centralized side of things, but understanding how this would impact DeFi and trying to figure out what could be done to both put together a bill that would pass, make sense, and a bill that would address the differences in the technology. Um, obviously we won't see what may have been um in different circumstances, but I will give their staff a lot of credit, and I think that really got lost in the Twitter thing. I did that one time, by the way. When Doug Jones was a in a temporary senator before we hired uh Tommy Tuberville, you know, cuz football coaches are fantastic senator candidates. Um Same with actors. Yeah. So, when Doug Jones a big team. Yeah, that's right. America. Yeah. Let's go get a first down. Um, so yeah, Doug Jones was a senator, and I just was like, I just want to walk in and tell you a little bit about what I think about crypto, and like whatever, some staffer that was in charge of finance stuff came and talked to me. Uh for a few minutes, and then nothing happened from it, but he gave me the opportunity, and I was like, I'll take that opportunity as a citizen of the state of Alabama to my representative who works for me. That's their job. That you're supposed to listen to us, and if enough people do that, then you might actually have an opportunity to make some change. So, go talk to your freaking representatives, you know? They will also ignore you. Some of the staff is like seem very tuned into crypto Twitter because I was talking to Nomad about some of this stuff. I think he was it Emma who was like saying Emma was like repeating some lines which seemed like very on topic. Like his staff is like on crypto Twitter somewhere um like tagging inverse bro or something. Um and I was having a discussion about this, and uh I was like, can we figure out who are the people working for the staffer is and like just blending in with weird profile pictures? Um and after that, two different um like one someone from like a senator staffer and someone from a house of reps person staffer reached out and were like, "Oh, like look, well, if you want to input on the bills and stuff like I was like, "Dude, I don't know what I'm talking about. Like you've contacted the complete wrong person. Look at my profile picture. It's like a Santa Claus with like loads of blood on his face. And it changes once a day. Um I don't know what I'm talking about, but like they do seem like really open to talking to basically everyone cuz I'm literally the bottom of the barrel for something like this. You're totally right about I mean, people love to point to the one you know, member of the House or Senate who goes out of their depth, doesn't know what they're talking about, and says something, and then they go, "Oh, look how out of touch these people are. They'll never understand this technology. They're ancient. They're, you know, from a different world and a different generation. " The fact of the matter though is that the staff of Congress is hugely influential in the way the member ultimately makes decisions. And if that's the way it should be, too. You need good people to make good arguments in order to be a judge of the value of those arguments on both sides. And this There are staff members in Congress who are crazy good at learning about crypto, who are deeply interested in it. Used to be that it was um fairly clear that you could participate in these technologies and use them. The ethics rules have gotten a lot cloudier lately, and that's actually a big problem, I think, because Yeah. if if the staff and the member, to the extent the member's interested Certainly if the staff wants to use crypto in order to learn about it, they need to be able to use crypto in order to learn about it. I mean Yeah. by various software developers to try to create sort of closed testnets in some way, shape, or form. Um you know, that's not ideal, and you want to make it in the system. I mean, I've definitely done an uptick in lots of um in lots of demos, as have other people who are focused on DeFi in DC. Um but a demo where you're watching somebody else click doesn't feel the same as like, I'm going to click, and then something goes out of my wallet, and it's irreversible. I mean, you could obviously bring it back depending on what you're doing. rugged first time, don't you? You need to get rugged for real. That's not what I was talking about. all right. Now I remove the LP. Yeah, now you've been rugged. Getting rugged on Gorelli, it's not the same. No, that's not what I'm saying. Although, you're right though that I feel like a lot of them are very plugged in to and a lot of regulators are watching what's going on in crypto Twitter, and I don't know if I think that's always a good thing. Um And I think a good thing. Yeah, look, I mean, the other thing I'll say, not to be too much of a Pollyanna about it, but I am I grew up in the Midwest, so I do have some of that in me. Um it's like, I don't want us to be publicly fighting as a space anymore. Like let's try to reel that back a little bit, especially if we want to continue on building, growing, all that stuff they were talking about. Like let's find private venues. We can fight it out. I mean I'm Peter Van Buren. I'm a lawyer. That's what we're all like built to do. So, you can definitely have disagreements, but better not to do it on Twitter, I'd say, you know? And you can definitely say what your opinions are, but uh and so I don't want to try to take people off of that, but I think trying to have a much more, you know, united and um sort of adult front. Although, I think we There's always room for Gabriel Haines in our world just from an entertainment point of view. But in all seriousness, I do want there to be sort of a cohesive vision of what things are going to look like in this space going forward. And regardless of whether people like this idea or not, there will be regulation in some way, shape, or form, not just of centralized entities, but it is I don't think it's politically viable anymore not to have some form of regulation in DeFi. So, we have to put something forward that makes sense and won't shut down software developers. And for the software developers who are building in a responsible way, they're already doing a lot of that stuff anyway, right? Security audits. That's like one of the most important things and something I talk about a lot um when I'm talking to regulators everywhere to understand like when we're talking about this when I said different with different regulations. Like the cyber risk can be addressed through security audits. Will it be perfect? No, but the traditional financial system isn't perfect either, so I think we have to find proxies for things that happen in the traditional financial world, and that we can make seem real even if it feels uncomfortable to be moving into a more regulated um and watched over system, but you can't just say no regulation cuz it's coming. And if you don't propose an alternative, you will allow the banks or people who do not understand the technology and the way it's being built to come up with regulations that will not be beneficial long term um at least for the builders. Totally. There's the There's an expression uh if you're not at the table, you're on the table. And it's a good expression. Around Thanksgiving, too. And frankly, if you're at the table, you might still be on the table as well. And I think this is something people are missing with the SBF thing. This like notion that like because he was coming to Washington, he's going to get special treatment now or something. I really I mean not a betting man, so I'm not going to put odds on it, but like fraud is fraud, and it doesn't matter if you donated a bunch of money to politicians. If it comes out that you stole customer funds, there's going to be consequences. Yeah. Listen, if he gets like a light touch thing, I'm going to be radicalized, I think. Like the way the like puff piece media stuff was a little bit like is this really happening? Like how come they won't just call it what it is? It's kind of blown over a bit now, but if he if donating hundreds of millions of dollars to politicians actually just lets you get away with fraud, I'm going to become radicalized, I think. Like surely the way it has to work is actually he has to he gets punished more

### OFAC / Sanctioned Wallets / Financial Privacy [57:30]

because of how blatant it is to just donate money and try and buy our freedom. Um Who knows? We'll see. Um I want to loop back a little bit to the um OFAC stuff because um you mentioned it was sanctioned, unsanctioned, resanctioned. Um and uh you know, you have the um the chart of OFAC compliant Ethereum blocks, which has been like uh until recently like growing. Um I think it topped at like 80 90% or something, and seems to be down trending a little bit um now. Um How do you think the industry and software engineers should be approaching uh like building a credibly neutral layer one in the environment where, you know, they've sanctioned a smart contract. Um and um uh like there is a lot of censorship on chain now. Um It's like uh like Tornado Cash blocks still get included, and like still get included in like 10 minutes or something, but um uh 90% of the blocks were not like were censoring those transactions for a long time. What do you think the future of this looks like? Is it like is there a um a viable path where uh you can have neutrality on layer one with these sanctions um in place? Yeah. So, this is uh a tough one. Um To be clear about Coin Center's specific legal challenge, we are in our complaint, we're saying, "Look, you've identified a series of addresses that are just smart contracts that have software within them that I could use to pay another American in an entirely legal and legitimate transaction. That can't be a sanctioned activity. And so, our challenge is narrow. It says you have to undesignate those immutable addresses because they're just software and what you're really doing is stopping US persons from using them for their own personal privacy. That would be a good victory. But even if we were to have that victory, there are other addresses that are sanctioned and we're not challenging those both in the Tornado Cash context and in the context of past sanctions from cryptocurrency standpoint like blender. io was a custodial mixer that was sanctioned. There were two Iranians who were running some ransomware software and their Bitcoin addresses were sanctioned. So there are going to be sanctioned addresses that are legitimately sanctioned under the law that we wouldn't be able to challenge on the same theory we're challenging the Tornado Cash addresses and that's probably the right outcome because Americans you know, to the extent that we use sanctions policies for our foreign policy sanction sanctions purposes, Americans shouldn't be paying Iranians who are aiding their weapons programs and things like this. So what does it look like then to be a minor or a validator on these networks where periodically someone's going to put a transaction in the mempool that is to one of these sanctioned addresses and let's say you're a US person as a minor or a validator. There are carve-outs from OFAC's powers. They're called the Berman Amendments and they're named after Congressman Berman, Senator Berman, I think. I should know that for a fact who said, "Look, we have the Trading with the Enemy Act which is actually the original statute here, very ominous sounding cuz who should be trading with the enemy? Absolutely no one. And we have the International Emergency Economic Powers Act and these are important tools, but this is America and so if you are importing or exporting political pamphlets into Cuba or out of Cuba, especially if they're about liberal democracy, but frankly if they're about anything that has to do with free expression and an open society, then you should be allowed to make those transactions because the way we win in the long run and beat illiberal regimes is by being open and by allowing commerce, especially commerce in information and the free exchange of ideas. So OFAC has carve-outs for something like a credible neutral base layer for international transactions. I I believe that. That's That's my interpretation of the Berman Amendments and that is not yet tested in court, so do not rely on my statements if you are thinking about validating a chain and putting a bunch of sanction transactions in a block. But I think that's exactly the kind of statutory law hook that is necessary to have a reasonable sanctions regime that rightly blocks people from paying known terrorists, but doesn't block people from engaging activity that's neutral and is just about the free exchange of information and technology and even money if it's for legitimate purposes cuz the vast majority of transactions in the blockchain are not criminal and they're not related to terrorism. And so that argument's going to have to be made in court probably one day. OFAC hasn't forced the issue. They haven't started coming after or offering strict interpretations of the amount of liability that a base layer validator is going to face. But if you ask an OFAC attorney, they're going to say, "Don't even touch that stuff. " They're going to take a very conservative perspective and that's what they should do cuz they need to protect their client. But somebody I think is probably going to want to do this on ideological grounds cuz they believe in incredibly neutral base layers and they're maybe going to be brave enough to ask OFAC for clarity and when denied the freedom to do that, if they are they'll need to fight it in court on both the statutory law ground interpreting the Berman Amendments and on the constitutional ground cuz the Berman Amendments actually reflect our First Amendment rights to the free exchange of information. Representative Berman. Um my Not Senator. Yeah, thank you. No problem. My question in this is that and this is part of where Eric and Sam um went to bat which was over the difference in um speech and finance and the free, you know, in the right to do these things and participate in these networks. So he made the comparison to email and you know, should email should Gmail or email be uh outlawed because of for the form of communication criminals will use versus, you know, finance. Um What kind of nuance is available there? Like how can we defend the right to privacy in finance this in a similar fashion to the way the right to um privacy from a communications perspective is very clear already? So there's a literature on money as speech. Um it's a contentious literature in the US because it brings up some deep-seated political divides between left and right in campaign finance and whether corporations should be able to donate. That's the Citizens United case. There's also a more interesting literature that speaks most directly to not just the speech concern and the assembly concern, but to the privacy concern that you raise. And this is uh probably best embodied by Alabama versus NAACP which is a path-breaking case back in the 1960s Why are we always getting involved? Yeah, we're always involved. I don't know why. Oh, that's right. So So your state's got some interesting history here as I'm sure you're aware. Yeah. They wanted lists of all of the active members and agitators in the NAACP during the Civil Rights Movement and they didn't want those lists for the right reasons. We know that for a fact because it was a segregationist um state government. It was Jim Crow. And so the NAACP being really brave folks who were standing up for the right things, of course, refused to give those lists, broke the law in effect, although an unjust law isn't a law maybe, and they took it all the way up to the Supreme Court and Supreme Court said, "Alabama, you can't do that. " There is a right to anonymous assembly. donations even in our Constitution and it's embedded in the First Amendment which says, "Look, you're only going to get people out there protesting if they feel like they can work together, coordinate together, make donations to the same cause without their names immediately ending up on a list and the reprisals that inevitably follow. " And so you have a constitutional right to anonymous assembly. And that to me is where you will find I think the strongest arguments in favor of base layer privacy and base layer censorship resistance being core to the sort of project that is the American open society. I mean not to be like grand, but like these networks embody our ideals in a fundamental way that you can be punished after the fact for doing something bad with a communications technology and God knows SBF should be if he's actually as guilty as some of the facts seem to indicate. But you can't be prior restrained from using those networks based on some bureaucratic idea of what should be and should not be published on those networks. So that base layer censorship resistant function is I think core to our to our American civil libertarianism, if you will, and I want to see that vindicated um in the long run. I do think though base layer is a little different than what you're talking about in terms of like finance, right? Um and while I don't think I strongly believe software developers should never be turned into financial intermediaries and it's something I say all the time and you can't touch the writing of code cuz obviously that's protected by the First Amendment. Deploying something into a commercial state is different than just writing it. I know Peter's and so you have to really think about that. And so when I at least think about are we going to regulate DeFi, what do you do? You have to think, well, at what point in time does it make sense to regulate it? Certainly not in the writing of code and certainly not after you've deployed it into a decentralized state, right? Cuz then you're turning software developers into financial intermediaries, but there is this like critical point in time and I don't know if I've ever said it this publicly before, right before you deploy, if you know you're deploying it into a state that is going to be used for a certain purpose, you do probably have certain obligations. They're not the obligations of a custodian or a centralized exchange or any of those things, but it's like what I was talking about before. Let's find proxies for ways to protect financial markets, consumer and you know, engage with consumer protection and things like that. Like security audits, like very robust notice and disclosure including about if there's a token, what does it do? What does it mean? Also if there's a multi-sig, you know, what does the multi-sig do? Who, you know, how are the powers deployed? When can those powers be deployed? Things like that are pretty they don't seem like what they would shut down DeFi and they do seem like they will bring a lot more transparency and protection into the space than maybe exist there already. Now, I would say a lot of the best software developers are already doing things like security audits. We certainly do them. Stani is a huge believer in security. He says, you know, DeFi is mission critical software, so you should treat it like you're launching a rocket into space and be that precise about it. So we are. But look, not every project has the money to be able to do, you know, three, four security audits. They're very expensive. Um but there are ways to do that. And the other thing, I think this will I'll say this, but I'll be transparent and it will probably be very unpopular. But the way audits are dealt with now is you just know who has the best reputation and so you use them, but there should be some sort of standard that people know and abide by at least when you're getting your audits done and you should be public about your audits and about how you addressed them, right? Cuz we had this I can't remember the hack, but there was like some hack that happened 18 months ago or something like that and they were like, "Well, we got a security audit done. " And then the audit firm came out and they were like, "But you didn't do what we told you to do to fix it. " And so and like there was a I remember this whole podcast listening to the auditors defend themselves be like, "No, like here's the report. Here's what it said. We identified the problem and you never fixed it after we gave it to you. " Um but like these seem like very basic things that developers are almost already doing or would not severely restrict, you know, how they go about doing it. So I think you have to be pretty um intellectually honest, too. Like especially when you're talking to regulators and policy makers. Like Peter was saying at the beginning like, "Have we solved all the problems and have we banked the unbanked with crypto yet? " No, we haven't. So you can't go there and say like, "Listen, it's fixed all our problems. " You have to say, "This has the potential to Let me give you some smaller use case examples. " Cuz those do exist now. Especially for things like donations. There are lots of great projects who are definitely doing payment experiments in developing countries, for refugees, and like So you got to find those really good use cases. Um and, you know, use those to start and then be honest about where it makes sense to, you know, maybe impose some restrictions or some requirements um before you go forward. And this idea of the standard setting regime like have you conducted an audit? Let's disclose it. What other standards are you abiding by? It's definitely something they're talking about in Europe and the UK and seems to be sort of one of the most feasible paths forward. You're talking to a I'm really afraid to check Twitter after this cuz I'm sure I'll get just excoriated, but yeah. And I don't know if this will be evident to the audience, but I actually agree with everything you just said, Rebecca. I think and our points are not in opposition to the to each other, though. My point about a sort of um an area of activity where you have the right to do it without prior restraint, which and you know, mandatory disclosure regime before publishing something is kind of prior restraint to you, right? To make up a bad advert. What I'm talking about as far as where you have an area of right or freedom to do something without prior restraint is the bare minimum. Publishing software. Like what Satoshi did. Putting a protocol out there and publishing a white paper. And I also believe, and this was our conversation earlier that Kobe started about sort of the validators and the miners on the network. That base layer. Like what are their obligations? I believe they should be able to pass information, already validly signed transactions, order them into blocks, and publish those. I believe that's also something that's sort of core to this First Amendment activity. The ability to assemble into a peer-to-peer network that does something. Where we get into harder, you know, troubling waters is where you've done other things in addition to publishing software or validating the chain, where you've also made promises to investors, where you've made promises or marketing materials that users rely upon, you've made guarantees. At that point you're engaging commercial behavior. And of course, there might be expressive elements of that commercial behavior that might warrant some level of First Amendment protection. But at the end of the day, if what you're doing is conduct, i. e. something that really changes the world, people come to rely on your statements, and they make material investments upon those reliances, then you don't get the same kind of um unquestionable First Amendment protections in this country. Burning a flag is expressive, but you can definitely be arrested for burning too many flags in the lobby of a building cuz it's just a goddamn public safety hazard for obvious reasons. So that line, the division between purely publishing code or relaying transactions on the network and then doing something more, that's the hardest area here. And it's going to be really messy sorting that out. And what my point about the sort of constitutional or fundamental rights um to engage in the formation of these networks is really about the far end of that spectrum, where we we're really just talking about research activities, publishing activities, and forming a network, not anything else necessarily. Like making promises about the usage of your tools. What

### Should technology have an entirely new regulatory framework? [1:13:40]

do y'all think about the different arguments where, you know, some people say, "Well, we have a lot of rules in place to determine stuff, you know, what's a security or what's legal or not legal or whatever. " Versus "We need a whole new framework or we division. " To your point earlier, Peter, about you know, yet another organization to regulate something. Where do you kind of fall in line? question. Yeah, so like I'm generally against technology specific laws or new regimes crafted around new technologies because I think they're often chronically outdated from the day they're published, right? Cuz the technology changes so quickly. If you try and ossify parts of it in the United States code, good luck how people will interpret that in just 5 years. The US privacy data privacy laws, most of them were drafted back in the 1980s. So they have more to say about what happens when you drive up to a processing facility with a trunk full of hard drives and whether they can share your data or not. They say nothing, of course, about Twitter, which was invented not actually all that long after the law was passed. Technology just moves really quickly and the laws move really slowly. And some of these regimes, like the securities laws regimes and the flexible standard for what is and is not a security, the so-called Howey test that we talk about sort of ad nauseam in DC and in crypto policy circles, are actually pretty darn good in the sense that they tee up the right base layer questions about economic arrangements without specifically mentioning whether it's a token or whether it's a currency or some arbitrary industry jargon like designation. So it's good to have technology neutral laws. The issue with the securities laws is, to my mind, not actually the flexible standard for what is and is not a security. It's what happens once your thing is a security. And that aspect of US securities laws is not very technology neutral because it makes all kinds of assumptions about how securities have to trade through a market. They have to go through clearing houses. transfer agents. They have to go through all of these regulated parties who did have to exist in the past, but in many cases do not have to exist now because the blockchain as a peer-to-peer settlement layer kind of removes the need for them. And so the issue with your token being classified as a security is less that it's not a security or is a security. It's that the collateral consequences mean that it's not going to be able to trade anywhere except a register registered national securities exchange, which means you'll have to get the industry association of national securities exchanges to create listing standards and it's the apparatus there is not modern and is not technology neutral. So I would like a flexible and sort of old regime in the sense of a neutral standard for when something is a security or not, but we need to rethink or have an SEC that's willing to rethink how much of the apparatus in the middle and the regulated parties in the middle are still necessary rather than forcing these market activities to go through structures that are completely obsolete. And now they're just going to be rent seekers. take fees because of their monopoly that they get from government regulation. The other piece of it I'll say, just listening to Peter talk about it and then thinking about, you know, how our system has always worked historically, the legacy financial system, is it's mostly excluded retail, right? From any new types of um financial markets, financial tools, financial instruments. And so if you bring this all back to the ways we've always done it, then you're going to take away what crypto was actually intended to be. Now, it wasn't meant to be, as you sort of joked about, Kobe, like rug pulls on retail and that we need to do things that prevent that. But I also think we need to be super focused on the fact that like we don't want to take away the possibility for people to participate in the financial markets and in a new way um just by going back to an old regime. I'm not a big believer in like let's create a totally new agency and things like that. Especially Peter was saying earlier like we're very especially in the US we're so decentralized. I don't think we need yet another regulator to deal with this, but we may need to cut across a number of different regulators to get this done in the right way. Um and we may need to be more creative than we have been just to say like it's a security and a securities exchange and then it just looks exactly it does exactly the same. Cuz if we do that, then we've taken away the possibility for people to really participate in what I think people are trying to build as something new and different and expand out our financial markets. And to just take it away from like finance and DeFi, things like decentralized social media and these other primitives are letting like even NFTs are letting people participate in the economy in a way they never could before at a point in time in their life that they never could before. And like that is what's really interesting, right? Like maybe DAOs are the future of work. Maybe NFTs are the way people are going to like make money, you know, going forward. And people will become living artists again and not just be starving artists and stuff. So like I don't want to lose sight of all that. We are like we're Peter and I are lawyers. It's a lot of what we do and we talk about the policy stuff, but like I am here for the like the broader mission. I know it's sort of cheesy, but like I think especially after going through this like huge existential but like going through this I mean, FTX was very existential for me. I really thought like, "Are we all here like what are we all here for? " Like this is not what I was here for. And quite frankly, before I started doing policy work, I wasn't even that focused on FTX and other like centralized exchanges except when I needed them to on and off-ramp. It just wasn't something I was thinking about. Um and I just want to make sure like we keep in mind what we're actually working towards and or what this what's interesting about this and stop being mired in all the like what is it? I think that's what frustrates me a bit is there's a pretty clear pathway to say let's spend, you know, some hundreds of millions of dollars to establish regulatory capture to fit these centralized systems to trade these decentralized concepts uh and do the SBF path, right? And what FTX was doing and some ways it's like, well, I want to participate, so sure, I'll use FTX and FTX US and they get all the stuff and that's the path and then he rugs me and you know, it's like oh crap. Uh so it didn't actually fix anything. Um versus like, well, I can trade a token that someone created on Uniswap the next day or like buy an NFT or borrow on Aave and these things just work and you don't need to be in any of those systems, but give me the clarity that I can actually use them without breaking some law. You know what I mean? Like am I breaking the law as a user? Is the person publishing the software that enables these efficient systems breaking the law as a creator? And the US is not making that clear and for someone that owns uh you know, or not forget owns a company like just publishes code or works on a team that publishes code, it's really hard to do it as

### Financial Surveillance / More on DeFi [1:20:45]

an American. Um and other I know other regions have similar problems, but like I'm an American, so you know, for me and my company or whatever, like doing certain stuff is complicated because even though it's efficient and it works, I don't know what my government allows me to do and that seems very it's very frustrating. Well, and it's interesting you bring that up because there's a lot of other things that have piggybacked US policy-wise on the presumption that there will always be financial intermediaries. And the biggest one is our current sort of financial surveillance apparatus, which presumes that Americans will make most of the consequential transactions in their lives via some sort of regulated third party who will collect information about them, identify them to regulators, file suspicious activity reports, all without a warrant, which is quite interesting. We kind of don't have Fourth Amendment rights against warrantless search in any of our financial activities. We gave that up in the 1970s when we started doing more intermediated transactions. And we really gave it up in the '90s when we started doing all of our transactions using, you know, Bank of America or Venmo or Alipay or WeChat. And so taking away the intermediaries isn't even if it's good for investor protection, which it is in some cases because you don't deal with this counterparty risk um in the same way, it's going to be difficult for law enforcement and or the policy arms of Treasury that set anti-money laundering policy because they've come to depend upon this mountain of data they get from the regulated intermediaries to detect crime in the financial system and stop it. And it's not like it's always been this way. We didn't live in a lawless society in the early 20th century when almost all financial transactions were done using bearer instruments. Things were okay. I mean, there were lots of systemic injustices, but those were actually not related to the bearer instruments, I would argue. And so can we go back to that? What will be the sort of resistance from folks who've become very reliant and dependent on that flow of very private information to those changes? What will happen? And then the other one really briefly that actually causes the most problems for your average American person who's using these networks is taxes because in a world where you have a broker or a dealer or a company like Robinhood or something in between you and your financial trades, you have third-party reporting and they calculate your cap gains and you get that nice form from them at the end of the year and you're like, well, I don't like paying my taxes, but at least I know what I owe. Whereas in a world where you're doing all of your transactions on DeFi and you might have had like leveraged NFT claims or something like that and at the end of the day you're like, oh wait, I have to pay my taxes? Great, who's going to tell me what I owe? And there isn't a way to know. Yeah. So maybe that can be fixed with software, but right now the tax code is just a nightmare. So hopefully it can just be fixed with software, but I think we should also start thinking about simpler tax codes that are a little bit more fair and don't have so many weird loopholes and carve-outs that you need a tax attorney to figure out what what's happening at the end of the day. But the software's a good you know, it's too optimistic probably what I'm asking for. Maybe but it there is a lot of software being built that deals with all of this. So first of all, I always say when we're thinking about the illicit finance stuff, like we're in a closed system, right? Like you really can't we live in a fiat dominated world whether we like it or not and so to get in or out of it, you need to be able to on or off-ramp through a centralized intermediary. That is where you can do very, very significant KYC and have a lot of the information that you've had before. The blockchain analytics companies have or use lots of different information um that helps with tracking. Yes, is it perfect um you know, under the BSA? Probably not, but there's a lot of good information out there and we're early still. Um And the other thing I'll say is on the illicit finance side, people are building out low-level user enabled blacklist. When I say low-level, I mean sorry, like base layer um or even protocol layer user enabled blacklist. So you say like, oh, I don't want to transact with anybody in this pool who may have, you know, a wallet that's been sanctioned or something like that or is an associated with a sanctioned actor. And in DeFi because it is very much like how we interact with cash although with maybe more complex financial tools um or primitives, uh you can then use tools that look a lot like ca- you know, what you would do in cash. Like, all right, if I give Peter $20, probably don't need to check if he's on the SDN list, but if I give him $200,000 even just in a you know, peer-to-peer transaction, probably should. Um and so you need to think about, you know, a lot of this is user enabled. Now, it's funny because when you talk to other regulators, they say like, yeah, but letting individuals deal with their own financial independence isn't always a good thing, right? Like retail frequently doesn't know how to protect itself. I think we have seen a lot of that um in crypto maybe in uh less favorable ways, right? With a lot of the scams, rug pulls and stuff like that. But we have like if we're going to be true to what the system is being built on, then you have to say like, okay, yeah, we need to do illicit. Um you know, we need to at least have some tools that enable monitoring for illicit finance and things that, you know, other regulators are used to seeing, but they just won't look exactly the same. I know I keep saying the same thing over and over, but like you can do all this, but a lot of what you're saying, Peter, it's done through technology and like there are these tax tools that you embed into your MetaMask whether you, you know, let's put aside whether you want to do that or not and that will spit something out at you tax-wise at the end of the year. So like this all exists. It's all being built out. Um I think the real problem is it's like crypto has captured everyone's psyche and now especially with FTX, but let's say even pre-FTX, crypto had captured people's psyche in a way that was like almost bigger than the mature definitely bigger than the majority of the industry and so the expectations were, well, where is everything to do all this now? And it's like, well, like we can meme it out, but like we're still early. So I think, you know, there's some of that stuff going on. All right, so hear me out. Let's say I bought a forklift for $10,000 cash. Can I sell coupons for $200 a day for people to borrow my forklift as a fractionalized uh piece of equipment? Yeah, there's inherent there's some good utility. What do they get for that? the utility of the forklift for the day. Okay, and then do they get anything else? Like does the value of the coupon go up or something? give them free popcorn for uh for their rental. I'm confident that one's not a security. Not a security. But I will say you bought this forklift for $10,000 in cash. Who did you buy it from? From the previous know their name, social security number, and home address and file a form 8300 to the IRS, you're guilty of a crime. All right, see you later, guys. And then that's This is actually going to be true in the crypto space because of the infrastructure bill, the 6050I report, which is this cash transaction over $10,000 report, um is now going to apply to crypto starting in 2024 and that's going to be a huge mess. That's another lawsuit that we're currently um running uh is challenging the constitutionality of that reporting requirement for ordinary people. This isn't about bank secrecy regulated intermediaries. This is ordinary people engaged in arms-length financial transactions will have to start learning a whole lot of intimate details about the their counterparties and reporting them to the IRS. Yeah, I had seen that recently about uh was it Venmo transactions? Like if people are, you know, for a long time it's been if you've accepted more than $600 or something like that in transactions, you're supposed to report it and they're apparently going to crack down on Venmo. Um and it's just kind of wild to me. Like what if you get a really big tip on Venmo? And like what do you do? Like chase them down? I was just the valet this for this same person like 80 times. They really liked coming to our restaurant, but it added up. Turns out my tips were more than $600. So, you know, Mr. Johnson, could you please give me your social security number? And Venmo is a an MSB, right? So they're Bank Secrecy Act regulated. And so their obligations are a lot lots stricter than the obligations of an ordinary person who don't have many obligations. They have to report these cash-like transactions over $10,000 and they have to obey OFAC. They're not allowed to pay sanctioned persons. A BSA regulated entity like Venmo has so many requirements under the Bank Secrecy Act that and their business is about making money, right? And compliance is a cost function in their business that this is why you see just accounts get closed all the time is because if somebody's not making money for you as a customer and they're engaged in a few transactions that are they're not providing enough information on as a business decision they'll just close that account. This is sort of core to the trade-off between uh you know, real financial inclusion and a robust uh anti-money laundering regime is that they work in opposites. And you'll find people even in Treasury who agree that they work in opposites and we need to find some balance not over-KYC'ing and over-compliancing things such that people can't get accounts anymore or they can't they get debanked. But you know, that that's a whole discussion already in the traditional uh legacy financial sector if you will. And crypto really forces these issues because there may now be a way for people to pay each other peer-to-peer and not go through those intermediaries and that can be a very good thing in some cases where there's somebody who was wrongly removed from the financial system because they're in an oppressive regime or because they don't have robust identity um for many reasons or it can be a bad thing because maybe they should actually not have the benefit of the financial system. Which is why I really like Rebecca's point about The Canadian truckers are an example. I like Rebecca's point about user-defined lists. Like at the end of the day I don't want a world where Venmo is the ultimate arbiter of whether or not a person can, you know, send money across the world. I don't want a world where the government is the ultimate arbiter of whether you get the benefit of financial services, at least not without a trial, you know, at least not before I'm convicted of a crime. And all of these de-risking programs happen before anyone's actually convicted. It's just like that customer seems too dodgy so we'll just kick them off. I want a world where people can sort of voluntarily assemble into groups and police themselves. And that is a cool thing about DeFi is if you really believe that as an American you shouldn't, maybe for legal reasons but also for ethical or moral reasons, be transacting with certain other people, maybe you set that policy for yourself and you have a group of people who set that policy alongside you. That's a pretty cool way of organizing a compliance regime. It is very alien though, I think, to regulators and so it's going to be interesting. Yeah, and there are people, I mean, this is not as an attractive as point as the one Peter and I were sort of talking about and idealizing about, but there are also people building out software that will like sort of plug into DeFi and be able to spit out things like SARs and stuff like that. So, it's all being built out and I will say there's been a lot of, you know, VC investment in crypto-native compliance, too. Whatever you want to say about that, that's out

### What does the future hold? [1:32:10]

there. So, you know, people are building. Kobe, you're so quiet. Listen, I'm going to let you guys that know what you're talking about talk. But I I do want to ask what do you think the future holds? Are we going to like bifurcate into like regulated RegFi and DarkFi where we've got KYC'd front ends uh to use Uniswap um on one hand and then on the other they got they use IPFS to host all these non-compliant front ends that are you know, sensor resistant and you can't take them down or whatever. I don't know how the interplanetary file system actually works but um you know, is there going to be a big bifurcation? Are we all just going to trade on Binance for the rest of our lives and CZ becomes like God Emperor and BNB is bigger than Bitcoin? Like what does the future hold uh in your opinion? I think that the worst outcome is if the regulations are enforced in a very black letter manner and to the extent they demand the continued existence of centralized intermediaries and people push to outlaw or limit the availability of decentralized alternatives, that's the worst outcome because then we all end up beholden to whoever runs those centralized intermediaries to make a reference to what you were just suggesting as a sort of apocalypse. I think bifurcation sounds kind of strange and maybe bad but it could be good in a certain sense. If you have base layer neutrality and you have a world where there are um regulated front ends and a lot of things If you can find a way to protect privacy in the in the process, that would be important. Like maybe you can use zero-knowledge proofs to determine if someone's on the SDN list rather than just taking their name and social security number and all kinds of other messy things about that data. That's a nuanced point but generally speaking if you have to some extent sort of compliance at the user interface level but there's still an ability to use the rails for sophisticated persons or persons in need, that's not a bad outcome. One of the things that looks like is everyone's playing on the same network. In regimes that are open and democratic, most people are very happy then to play on the regulated rails. In regimes that are oppressive and totalitarian they're the regulated aspect of that system, the licensed front ends if you will or the places where you can actually use the things will be so censored to the point where people won't use them because they won't be able to get money out of their country or they won't be able to support civil disobedience and those people hopefully will have the tool set, the software and the raw network access ability to be subversive in that environment and make transactions that the regulated front ends don't allow. Like that's not a bad outcome. It would be still freedom enhancing, I think, especially with respect to totalitarian governments and oppressive regimes. Rebecca, what do you reckon the future holds? I hope we can come up with something that doesn't have some sort of dark pool uh thing like you're talking about and some, you know, okay, highly regulated state. I think in an ideal world and this is what I was trying to say before is like and what Peter's saying like take a seat at the table, come up with some proposals. It's not going to be perfect, right? It's just not. Um we're going to have to give or if we want to keep moving forward, we may have to give up something in a regulated state and I don't want to have to give up too much so I think we should take a seat at the table and make some proposals that make sense going forward. So, um the interesting thing is I've spoken to um various sort of regulators around the world and some of them do think this like opt-in standard setting regime for DeFi is going to make a lot of sense. Um there's not a lot of self-regulation in countries other than the United States. It's not a huge thing that people believe in. Um but I do think if we sort of um mandate uh something that makes sense and that also addresses what I keep talking about, financial uh stability, market integrity, consumer protection, illicit finance. You have to make a compelling case. Um but I'm hoping we can keep building in a way that makes a lot of sense. Seems like there has to be a path where you're not creating like two Internets, you know, uh you're allowing the system There are two Internets, maybe three today, you know what I mean? And not like Web3 but like there are multiple Web2 Internets. Like I mean Not everybody participates in all of the different Internets that are out there but um you know, I think we can live in an idealist state and say, look, this is all meant to be censorship resistant. This is I didn't mean to cut you off but like this is all meant to be changing everything um and so we won't take anything less than that. Um but I'm pretty committed to the fact that this can and has the potential to change the way we do things and enable people to live somewhat differently than we do now and, you know, I grew up in the middle of America and so I and you're in Birmingham, you know, like we've I think there are a lot of different ways people live and I'd like there to be and I'm sure this is very idealistic but I'd like to have everybody have the opportunity to do more. I think Um and so I yeah, go ahead. I think the part that frustrates me about it is what that actually ends up being. It's one thing for the interface or like my interaction on the shallow end is this is different but when it affects like my capacity as a rule follower to get liquidity as an example, very clear example. If I used uh FTX US, I don't get to the same liquidity as FTX. com. If I use Binance US, I don't get the same liquidity as Binance. com. If I use Kraken's US platform, I don't get the same liquidity as Kraken's like other liquidity. And I shouldn't be punished for my ability to effectively financially transact for following a rule set, right? Like it seems like the liquidity to make sure your funds are there though. So, you might have But that's where the smart to me it seems like that's where the technology can lead, right? Like the technology can enable everyone to use the same general tool set, have this access to liquidity but as a rule follower I shouldn't be punished in my financial like capacity, whether it's liquidity or something else versus people who are living outside the system have don't have like they have much greater access from a tool set perspective or whatever else. Like I feel like that is a unnecessary burden where my ability to just opt out and go use the other thing and say I'm going to participate in the other one because it's better in every way see it's like making me now not a rule follower when I want to be a rule follower. Does that make sense? Yeah, but the world is apparently unfair and hopefully I mean hopefully to your point that some of this decentralized software will change those and maybe that's what your point is that decentralized software yeah, can change some of those paradigms. And that's why I'm saying like let's not regulate it exactly like we do everything else, but let's address the kinds of concerns that regulators policy makers have in a way that software to continue on. Yeah. Ledger, how do you feel about taking

### Questions from the chat / Regulatory Uncertainty [1:39:45]

questions from the chat? Do you think this is Do you think they're going to have good intelligent policy There was There were a couple. One was about the library case if you're all familiar with that and like what the implications are. I don't know enough about it, but that was one that came up a couple times and I said I would ask it. So, that's we can start there, but I think I think the chat that's with us is in it for the conversation. So, Sure. Sure, you want questions or do you want us to talk about library? Yeah, I'd love a little bit of a TLDR on library. Okay. Uh Peter, I'll take it unless you want to. Okay. So, the library case LBRY um was a case uh a many that we've seen in SEC enforcement action. It was in I think the District of New Hampshire. So, a smaller court um and it was about whether the library the token that library had issued was a security. Uh they court found on summary judgment. So, they went through this full process, right? The SEC filed a complaint, then they went through what's called discovery where you exchange documents. The SEC probably didn't exchange most documents cuz when you're in enforcement action, um you don't really get a lot of discovery from the regulator. They got library. Um and then they had uh motions for summary judgment saying that um the library token uh secondary sales of it were securities. Um this is a lot like some of the issues both that we've seen in the Kik and Telegram cases and that's pending in Ripple. Obviously some different facts and circumstances and everything with Howey is a facts and circumstances case. Um the interesting thing about the library case is that it was a pre-mine instead of an ICO. And so, they sold actual tokens. Um and they sold them to accredited investors. So, through what's called an like what's thought of as an exempt securities offering. Uh but the court ended up finding that a lot of the statements that uh the core team had made and um some of the promises about what the token would do, about what the software would do, and why the token would be valuable um ended up making and they the court said and this is what I think is the most controversial part that even if the team had never said a word, there would still be an expectation of profit given that the team had pre-mined the tokens and sold them before the technology was ever built and the team was at least committed to building the technology. I think that is a probably a larger reach than what exists in the Howey case law today. Um but that's essentially where the court ended up. Uh and so, on summary judgment, that's a final determination. You could appeal it up to a higher court. I think Is New Hampshire in the first amendment is the in the first circuit? I don't remember, but you'd appeal it up to the circuit court and then whatever happens there, you could appeal it up to the Supreme Court. Um but it's a final determination on the merits. So, it's pretty significant in the fact that it's a final determination. Again, just like Kik and Telegram, it's a district court case right now in the District of New Hampshire, but it's a it is a case that other courts could rely on when they're looking at similar facts and circumstances about whether a token is a security or not under an SEC enforcement action. Coby, have you seen any The only thing I'd add is I agree that the merely the fact that they owned a fair amount of the token is enough to prove expectation of profits because therefore they will work to make the token better because they own it. I think that's a rather extreme um interpretation of the relevant law. And then the other thing is um the judge basically said there's been these claims that people are buying the token cuz they want to use them for the functionality on the network and we don't even need to investigate those claims because that's not relevant to the legal question at hand. I think that was uh cuz there's a factual inquiry as to like whether the token does things and whether people are seeking the token cuz they want to actually say make smart contracts on the Ethereum blockchain for example or something like that. Um but the judge said we don't need to go into the factual inquiry cuz it's not relevant to the question of whether it's a security or not. I think it is relevant to the question of whether something's a security. And then you could find that actually it wasn't useful at all and therefore it still is a security, but the judge didn't entertain even entertain that factual inquiry. Coby, did you catch any good questions? Um I got a couple on Telegram um from people um how risky is it to be a developer in DeFi um today and how risky is it to start a DAO that does DeFi today? And all from the same person. Um if I'm uh based in the US, um do I just need to leave the US if I want to like build in crypto because I don't know what I'm So, I mean I'll just briefly say one thing about being a developer. If you're developing privacy-protecting tools, it seems like very scary because um as we've discussed briefly, there's a developer uh of the Tornado Cash protocol who's sitting in jail in the Netherlands and hasn't been charged yet. And in that case, I would rather be a US person. Um cuz we don't know I don't we don't know all the facts. He hasn't even been charged. We don't know all the facts of what he may or may not have done either. But if all you did was publish smart contract code that allows people to maintain their own privacy while using a network like Ethereum, and you did nothing else, in the US, you'd both have the courtesy of law enforcement having to charge you with something rather than holding you for hundreds of days without charges, and you'd have the first amendment, which is there are speech rights in European countries. I'm not denying the existence of speech rights, but the first amendment is a much more robust area of um constitutional law here in the US. And so, you would have I think very good defenses that if you were to be held responsible merely for publishing code, uh you could argue that that's a prior restraint on your first amendment rights. So, there are some reasons to be in the US if you're a DeFi developer uh who's merely publishing code, which I would argue is the truest way of being a DeFi developer is if you're not doing a lot of other things beyond publishing software. Um there are other complications like the securities laws issues that might make the US less appealing, of course. I yeah, my answer to that is that it's just like it depends. Like it depends what you're building, right? It depends on how it's deployed. decentralized it is. One of the things we sort of glossed over or haven't really talked about at all is like there is this concept, you know, or this idealism that um DeFi is truly decentralized and you know, there's been a lot of skepticism around that and that's correct, I think in many ways cuz decentralization is really hard. And so, if you just say like oh, it's DeFi cuz it's operating on smart contracts, but you like hold the admin key and engage in transactions with users and you know, do all these other things and market it and um and the like, you may have liability in a different way than if you deployed it to a truly decentralized state. And Peter's point about like well, being a true like a just writing code is the you know, most authentic way to be a DeFi software developer is probably right. And there are definitely protocols out there um where the you know, everything was published to GitHub and someone else used the um deploy remit and put it out there, you know, from a third party or a non-way and things like that. Um so, it depends on what you're build If you're building a derivatives protocol and you're going to run it in the United States and they're going to be US persons and it's not that decentralized, it's probably very risky to do it um because derivatives need to be certain types of registered with the CFTC, need to have only certain types of persons on the platform, you can't sell derivatives to retail, things like that. Um but it really depends on what you're building and then how decentralized it's actually going to be. Um DAOs are a bit different and I think this is sort of referring back to Ooki DAO, which we didn't, you know, in the case that the CFTC brought against Ooki DAO, which we didn't touch on at all and we're like now hitting 2 hours and this has gone by very quickly, but um uh that also depends on what the DAO is doing and unfortunately, the facts of that case are um pretty tough to overcome because you have the statement that the founders made to say you guys are just going to do the exact same thing we were doing and when we were running the business, but we're just going to do this for regulatory arbitrage. I just I don't know if it gets much worse than that. That was a That's a pretty damning statement. Um but to just participate in a DAO generally, depends on what you're doing. If you're voting um to run a derivatives protocol that is being offered to US retail, yeah, that may be pretty risky. Um but if you are just I don't know, voting because to I don't know, give a grant to a software developer who's building on top of the protocol, maybe not as risky, but it really depends ultimately what the protocol does and if there are prohibitions on doing that and if in the United States, if they're in the US, uh and also as I said, whether it's really decentralized because that's the hardest one it's the hardest thing to actually do from a practical standpoint is decentralize the ecosystem around the protocol Uh and we have to be pretty honest with ourselves about how difficult that is. It's also very difficult for software developers to sort of give up something that they put a lot of like sweat and tears into building understandably. Cuz they care about it. But you know, I think the decentralization point is one that we haven't talked about and that we can't miss when we're talking about how much risk there's involved in D 5. If it's not really decentralized, there's a lot of risk. If you're just running a centralized whatever it may be derivatives exchange, security exchange, whatever in name only like this D no concept decentralized in name only. Um maybe a crude question. Do Kwon, Su Zhu, Kyle, SBF, Alex Mashinsky, how many of them go to jail? I'm not weighing in on that. I'm not a betting man. Over under on half. I'd take the under. Now you're getting I think it's we've gotten to a good place that we're only declining questions at the end of this podcast. You guys have gotten us to a good place so far. I do kind of have one more question cuz I feel like there's an element of crypto that's still like really weird to settle. Maybe not with us, but with authorities or like regulators and whatnot, which is just the general idea like I have a $20 bill right here, right? And that is cash. What? Don't flex on us. Yeah. Kobe, I got a bigger flex for you. You ready? Okay. Yeah. All right. This is $600, okay? Okay. So this is the magic number, right Peter of like what is, you know, sorry, here you go. Proof of hundreds. Uh So 600 plus 20, now like if I transact this, I am perfectly capable of doing this transaction. I can hand this to someone to pay for a service, but I then have to self-report this. But my right to transact this cash privately is still there. I may have certain obligations of like tax paying or reporting or whatever after the fact, but I have that right to do that. And it doesn't seem like we have it very clear in terms of how that works when you're doing it with crypto or like how some regulator thinks you're supposed to be able to do that and like determine what you're allowed or not allowed to do in a crypto sense. Does that You know what I'm saying? Like it seems weird. fundamentally you have a capability of doing it in the real world because you don't have someone constantly shadowing you and binding your hands if you decide to hand your $600 to the wrong person. And that kind of world would be awful. That would be the most intrusive Orwellian totalitarian regime we can imagine. Um online you don't have that physical capability until crypto comes along, right? Online the only way to make a transaction is to use an intermediary. And an intermediary if it's worth using is going to be big enough and connected enough that of course it's going to end up heavily regulated and a tool of the state not just to enforce the law, which would be fine, but to actually create prior restraint on financial transactions to either sub silentio, which is how it usually happens, pressure a bank to say, "We're not going to pass a law that says you can't donate to WikiLeaks, but if you're a patriot American Express, you'll stop processing these credit card transactions. " And that kind of that's more like the person following you around and binding your hands so you can't hand the money to the person you're paying. That kind of control before due process cuz no one's accusing you of a crime, you're just no longer allowed to pay this person is not something I like about our current technological and financial ecosystem. And crypto fixes that. And that's going to cause a lot of issues, But it seems it's a worthy conversation to have, right? About that Americans should have about what it means to have be have that privacy or not. I think so. I mean I obviously agree. I work at Coin Center. We published a report uh four years ago called the case for electric cash um uh where Jerry our executive director lays out the sort of moral and ethical argument that we should be able to engage in peer-to-peer transactions online without prior restraint, without censorship because otherwise we don't have an open society. And the alternative, which is sort of like a central bank digital currency or a world like China today where almost all payments are through Alipay or WeChat and everything is intermediated and surveilled and controlled is not a free and open world and it's a dangerous one because of the centralization of power in the hands of a political elite that will probably abuse that power. So obviously I agree and then I wrote a companion report the next year arguing for how you can interpret certain aspects of our Constitution as guaranteeing those rights which some of those arguments hopefully will get tested in court in the next few years to the extent they need to be tested in court, but You got me wildly agreeing with you. Awesome. We have like a two-minute hard stop, but Rebecca, do you have closing words for us? No, I really said a lot of what I wanted to say, which was like just get involved, take a seat at the table. Let's try to come to some reasonable at least public facing position and you know, try to hammer out the rest behind the scenes at least as lawyers and policy people. There are a lot of good people in crypto working together in policy and working really, really collaboratively both on the hill Kobe and in other places. And I think everybody should be doing that and people should definitely try to join in as much as they can. And the other thing I think that really gets missed is there are people in DC and elsewhere who do want to do the right thing long-term for the technology whether it's in centralized crypto or in D 5. And we got to make sure we are giving those people credit and working collaboratively with them, too. Rebecca, thank you so much. Peter, Y'all can follow their work on the internet. Ava, Coin Center. I don't know what else I'm supposed to say. Is there something else there? Was that it? Thanks, guys. Thanks for joining us. Thanks. Appreciate all y'all being here with us. I just did pull an all y'all, so you know, shout out to me for that one. Uh Yeah, good talking to you, Kobe. We'll see you next time. Ciao.